How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4953
Type Your Tax Question Here...
bigduckontax is online now

there - I am looking to buy a buy to let property. I

This answer was rated:

there -
I am looking to buy a buy to let property.
I have money in my ltd company i would like to use to finance the purchase.
I do not want to draw this money as salary or dividend as i would be subject to higher rate income tax.
Instead - i would like the company to loan me the money, and i will pay back at a commercial rate of interest. (or interest free if possible)
Can this be done - and if so how do i need to set it up so i am doing everything by the book?
Do i need to specify a term loan, can it be as long as i want? Can it be interest only? could i borrow 100k over 25 years and pay back only the interest each year? Or do i need to make capital repayments also?
, I'm Keith and happy to help you with your question.
You are presumably a director of your company. If so then the moneys advanced would be a loan to a director. Such loans create horrendous taxation problems unless cleared within nine months of the end of the company's accounting year. They are, in my opinion, best avoided.
Your solution is company to buy the property, collect the rentals and pay the bills etc. You could then extract the money from the company by way of salary distributed under PAYE arrangements, compulsory as you are a director. If this pushes your personal income into higher tax brackets this could be reduced by investment in a Private Pension Scheme within permitted limits [currently 40K per annum]. Alternatively the company could fund the scheme direct and these payments would be allowed against Corporation Tax as, indeed, would salary.
I do hope I have been able to show you a possible and tax efficient solution to your conundrum.
Customer: replied 3 years ago.

Ok understood -

Ideally i would like to ring fence my current trading company from my property.

Is it possible to set up a new company, and pass the income to the property company either by a loan or by subscribing to shares?

If so - can it be interest free or does it need to be at commercial rate of interest?

Certainly this route is feasible. What each company agrees to by way of interest rates inter company loans is a matter companies themselves through their Boards of Directors who will set policy.
Fortunately you are not talking about US companies. Such capers are frowned upon over the pond.
bigduckontax and other Tax Specialists are ready to help you
Thank you support.