Is this even possible? One for Eric Mc

[WEHGuy]

hi folks,

To follow up this thread

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

Say I borrow £400k from my company to pay cash for an under valued house or from an auction and then spend £50k renovating it. I then manage to get it valued at £500k so, get I a £400k(80%) offset mortgage at 4%. I keep the companies money in my offset account until the last day I have to pay it back before I have to pay any penalties. I then reborrow it and do the same thing again, then again and then again, until either the mortgage is paid or the company needs the money. It would work out at 4% interest per year and then I wouldn't have to pay 8% tax on the interest.

Is this even possible? I know I should speak to my accountant but, would like to know if, it is even possible before I wasted my time.

Thanks in advance.

[westhamtim]

Obviously you should speak to your accountants but as a guide I think there are two issues:

- you'll need to pay a commercial rate of interest (currently 4%) to your company which will be taxable on the company.
- any increase in the loan that is still o/s 9 months after the company year-end will attract 25% corporation tax. I don't think it's acceptable to just 'bed and breakfast' the loan around the year-end.

[db10]

How big is the company? Wondering whether it's an SME so tp rules don't apply

[sumo69]

As another accountant I will give you the answer - as stated before HMRC will look through any "bed and breakfasting" of directors loans which will mean your company would be assessed to a £100k charge which would only be repaid 9 months after the accounting period on which the loan is PERMANENTLY repaid by you.

There would also be a benefit in kind arising on which you would pay 40% tax and the company would pay 13.8% Class 1a NIC - the annual benefit on 400k is £21k to put this into context.

David

[westhamtim]

sumo69 said:

As another accountant I will give you the answer - as stated before HMRC will look through any "bed and breakfasting" of directors loans which will mean your company would be assessed to a £100k charge which would only be repaid 9 months after the accounting period on which the loan is PERMANENTLY repaid by you.

There would also be a benefit in kind arising on which you would pay 40% tax and the company would pay 13.8% Class 1a NIC - the annual benefit on 400k is £21k to put this into context.

David

I'm not sure that the timing of the repayment is correct but I dont know for sure so am not going to attempt to definitively correct. But the BIK issue can be solved by paying the company a commercial rate of interest as I mentioned. As stated this would be taxable but assuming a CT rate of 20% and an ability to get the PAT out of the company without any additional tax hit then that's a cost of 0.8% (4% x 20%).