Borrowing Money from own company

[UKSBD]

I need a personal mortgage to buy a new property and the amount I need
to borrow is about the same amount as my own company has in reserves.

The business is currently getting less than 1% interest on this lump sum
and if I go for a mortgage will be paying about 4%

Is there a reason why I can't borrow the money from the business and
pay the interest to my business?

I think I asked a similar question before and was told a director can't
borrow from his own company, what reason is given for this (if true), and
is there another way around it (lend money to wife instead, shareholder
but not director)?

 

[KM-Tiger]

You can actually do better than that if you get an offset mortgage account, as you will effectively earn interest at your mortgage rate, and free of tax.

Hoops to jump through abound, get professional advice.

 

[UKSBD]

Hoops to jump through abound, get professional advice.

Just a general accountant? or would it have to be a specialist.
Am I right in thinking I can't (as a director) just borrow from my company?
Is that what prefossional advice would get round?
i.e.
use a loophole

 

[Vikas]

As far as I am aware Companies Act limits the amount that can be borrowed to £5k so if you borrow the money to pay for your mortgage you would be breaking the law.

But it would actually take another shareholder to make a complaint for a prosecution to take place. So if you have a closed company with a limited number of participators you probably won't have a problem. These kind of loans are relatively common. I had a client recently who borrowed £270k for 18 months.

On the other hand as it is a mortgage and likely to take more than 9 months to repay, S419 will be a problem for you.

 

[downsouth]

could you not 'borrow' the money and write these borrowings off against income during the tax year in which it was due to be repaid??

obviously paying the tax/interest that taking a directors loan of over £5K would require

 

[Vikas]

That can't be done as the director would become liable for tax on the borrowings.

 

[downsouth]

well i'm not expert on accountancy methods but that exactly what my accountant has suggested, yes you will need to look at the tax on borrowings etc

i'm sure a qualified accountant on these forums will come along and advise on the methods

 

[Vikas]

Sorry my last post was misleading when it said 'it can't be done'. It can be done although using this method is in my experience not usually the most beneficial.

 

[UKSBD]

could you not 'borrow' the money and write these borrowings off against income during the tax year in which it was due to be repaid??

obviously paying the tax/interest that taking a directors loan of over £5K would require

This is additional money after taking out full dividents and wages for the year.

I would take the full dividend for the year in April, but still want to borrow
a lump sum on top of that (wages for year would be under £6k so know
real advantage of borrowing that early)

It just seems crazy that I can borrow of a third party, but can't borrow
the money from company (both would benefit if I could)

 

[KM-Tiger]

Am I right in thinking I can't (as a director) just borrow from my company?

Beyond the £5k limit is a minefield, but there are accountants who can guide you through that.

You cannot take a permanent loan, you have to pay it back, then you can take it out again, which is why it must be an offset account, where you can enjoy the interest at mortgage rate for best part of the year, which is better than getting b*gger all for a whole year.

 

[UKSBD]

sounds like a lot of hassle :redface:What about the business lending the money to the wife?
(the house will be in joint names anyway)

If she isn't a director, is there anything to stop the company lending the
money to my wife (she is a share holder, but not director or secretary)?

 

[streetslocal]

To lend to the wife though would a consumer credit licence be needed at all?