Parent Loan

[degenerationx]

Hi,

Im in the very fortunate position whereby my parents have offered to give me money to set up my own business. I will also be looking at the rest being self funded from savings. They dont want the money back but i will 100% be giving it back as soon as I can. They would never ask for any interest

If I dont take the money from them then ill have to go to the bank and obviously pay back the loan with interest.

My question is how do I payback my loan to my parents. Do I pay tax on the profits that I make then give it back to them through the dividends I receive. Or can I just give it to them tax free as I owe them a debt? Would they be liable for any tax implications as they would be receiving money?

Im just trying to find the least expensive way of doing this

Tanks in advance

Dan

 

[Paul_Rosser]

If they give the money to you personally and then you put it into the business as a loan, you can withdraw it at any time you like and pay them back. This will be as a loan repayment and not via dividends so won't attract any tax.

 

Hi,

Im in the very fortunate position whereby my parents have offered to give me money to set up my own business. I will also be looking at the rest being self funded from savings. They dont want the money back but i will 100% be giving it back as soon as I can. They would never ask for any interest

If your parents are comfortably off.

Then why would you not accept a gift.?

I speak as a parent who has given money to my children in order that they do not have the extra strain of paying loans back.e.t.c.

 

[degenerationx]

Thank you Paul for that bit of advice. Does that mean no-one would have to pay any tax, including them? Would my parents have to declare that they received money from me as a loan repayment?

Good point you bring up sirearl. Its a lot of money for one to invest. I would just feel so guilty after taking that sort of money from them. They always say ill get it when they die anyway so why not take it now (sorry to be morbid) - i dont like taking money from anyone so i would always feel like i had to pay them back - weird i know!!

 

[Paul_Rosser]

Thank you Paul for that bit of advice. Does that mean no-one would have to pay any tax, including them? Would my parents have to declare that they received money from me as a loan repayment?

Unless you are paying them back with interest then no they don't have to as they won't gain financially from it and will just end up with the same money they started with.

How much money are we talking about though ? As you may have issue with inheritance tax if (god forbid) they die before you have paid them back.

 

[degenerationx]

Thanks again Paul.

On a random note if im putting money in from my savings can I take the money out tax free too in order to pay myself back. I guess it doesnt work that way if you are paying yourself back a loan but thought id ask

 

Good point you bring up sirearl. Its a lot of money for one to invest. I would just feel so guilty after taking that sort of money from them. They always say ill get it when they die anyway so why not take it now (sorry to be morbid) - i dont like taking money from anyone so i would always feel like i had to pay them back - weird i know!!

Well I agree with them.

I would rather my children enjoy there lives now than when I am dead and not able to observe it.

Pretty sure your parents know that if you hit it rich you will look after them and starting a business is a stressfull time for most.

So I would suggest you accept the gift and be thankfull that your parents have so much common sense and are so caring.

For tax purposes I leave that to better qualified.

 

[degenerationx]

You do give good advice - you sound like my mum

I do have the best parents in the world. I forget that sometimes

 

[Paul_Rosser]

Thanks again Paul.

On a random note if im putting money in from my savings can I take the money out tax free too in order to pay myself back. I guess it doesnt work that way if you are paying yourself back a loan but thought id ask

Yes you can.

Just make a note at the start of the business how much you put in and then note it again when you take it out.

 

[degenerationx]

Can you draw little by little out year by year but obviously keep track and record when that is done?

 

[Paul_Rosser]

Can you draw little by little out year by year but obviously keep track and record when that is done?

Yes you can.

As it's a limited company you have a thing called a directors loan account (DLA), so to start with say you put £5k into the company from your personal money then your DLA is £5k in credit and you can withdraw this anytime you like (or in bits) without attracting any tax.

http://www.hmrc.gov.uk/ct/managing/director-loan.htm

Do you have an accountant ? Are you planning on getting one ?