Repaying My Mother for Interest-Free Personal Loan from my LTD company

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Farrella
Farrella Posts: 71 Forumite
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edited 7 August 2017 at 10:00PM in Loans
My mother loaned me money (interest-free, but with a written contract) several times about 10 years ago when I bought my first house (in her name so she was legal owner, but with money from my personal account, including her loan) and when started a company with my business partner (written loan contract with me, not my LTD company, so money went to me first). He is the director and I am an equal shareholder. Our company is now doing well and I'd like to pay her back.

Can my LTD company (where I'm not officially the director, just the equal shareholder) pay the money to her account, or do I have to transfer money to my personal account first and then transfer to her?

Is there any tax for the money that will be transferred from LTD company account to my personal bank account and then to her to repay the personal loans?

Thanks for your advice!
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  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
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    Farrella wrote: »
    My mother loaned me money (interest-free) several times about 10 years ago when I bought my first house and started a company with my business partner. My company is now doing well and I'd like to pay her back.

    Can I pay the money to her account direct from my LTD company, or do I have to transfer money to my personal account first and then transfer to her? I understand that this payout would be tax free for all parties as it was an interest-free loan?

    Thanks for your advice!

    You can - so long as you have a positive balance in your director's current account. It would be treated in exactly the same manner as is you transferred the money to your personal account.
  • Farrella
    Farrella Posts: 71 Forumite
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    I am an equal shareholder, not a director. But the director has authorised an equal payout to all shareholders (small company!) and the company's current account has the funds.

    So just so I didn't misunderstand, even my mother loaned me the money personally, I can pay her direct via my company without going pass my personal account even though I am not the director and am officially just a shareholder?
  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    Why do you believe the transfer would be tax free for all parties? The company isn't repaying a loan made to it, the company will be paying money to someone whom you personally owe money.
  • comeandgo
    comeandgo Posts: 5,744 Forumite
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    So a dividend is being paid? There may be tax issues. I suggest you ask your accountants.
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
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    Farrella wrote: »
    I am an equal shareholder, not a director. But the director has authorised an equal payout to all shareholders (small company!) and the company's current account has the funds.

    So just so I didn't misunderstand, even my mother loaned me the money personally, I can pay her direct via my company without going pass my personal account even though I am not the director and am officially just a shareholder?

    You cannot. If you were a director and had a balance in your director's current account (not at all the same thing as a company bank account) the payment could have been debited to you. The dividend, presumably, will be credited to your own personal bank account from which you should be repaying your mother. I cannot think of any conceivable reason why you could believe that it would be fine for a limited company to make a payment to an unrelated person without repercussions.
  • Farrella
    Farrella Posts: 71 Forumite
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    No this is not a dividend. The company is paying its two equal shareholders (but only 1 Director, which is not me) the money, which has been sitting in the company's account for over 1 year.

    Am I mistaken in thinking that the LTD company can pay the money into my account, and then for me to use all that money to payback my mother without paying any tax on my side because I have used all the money to pay back an interest-free personal loan?
  • m_c
    m_c Posts: 79 Forumite
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    Speak to an accountant.


    From what I understand, unless the loan was done officially and has been recorded as such, then no you can't get the money back without paying tax.


    You can however get the money paid to wherever you want (you could even withdraw it as cash), but it still has to be declared somewhere for tax purposes. So speak to an accountant.
  • BrassicWoman
    BrassicWoman Posts: 3,202 Forumite
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    was the personal loan to put a stake in the business?
    2021 GC £1365.71/ £2400
  • Ebe_Scrooge
    Ebe_Scrooge Posts: 7,320 Forumite
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    Farrella wrote: »
    No this is not a dividend. The company is paying its two equal shareholders (but only 1 Director, which is not me) the money, which has been sitting in the company's account for over 1 year.

    Am I mistaken in thinking that the LTD company can pay the money into my account, and then for me to use all that money to payback my mother without paying any tax on my side because I have used all the money to pay back an interest-free personal loan?

    Yes, you are mistaken unfortunately. The only way a company can pay money to shareholders is via a dividend. A company cannot simply "pay" money to its shareholders willy-nilly.

    If the original loan was made to the company specifically, and recorded as such, then that is a different matter.

    If the company pays money to you, in whatever form, then you are free to do with the money as you wish. However, there will be tax implications both for the company and for you.

    As others have said, you really need to speak to your accountant. The bottom line is, a company bank account is not like a personal bank account - you cannot really deposit or withdraw money without having documentation to state where it has come from / is going to. Well, you could, but you open yourself up to all sorts of mess with HMRC. The one mantra that stands above all else is - "you don't muck about with the tax man" !

    Really, speak to your accountant. The rules about how you take money out of a business are complex for a "layman" ( no disrespect intended ). You need to be sure that what you are doing is all above board, otherwise it'll sure as hell come back to bite you on the bum later on down the line.
  • Farrella
    Farrella Posts: 71 Forumite
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    edited 7 August 2017 at 9:55PM
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    There were multiple personal loans over 10 years:

    1) One for buying a property (which was in my Mum's name because I couldn't get a mortgage, but the property was bought using money from my personal bank account with money from her loan...there is a written contract for that loan),

    2) Several for my LTD company (there is a loan contract that says it is an interest free loan from her to me for the purpose of this LTD company, but money went via my personal account to the LTD company's account).

    So is there no way I can pay back my Mum's interest-free loan to me with this new company payout without paying income tax?

    I will consult an accountant but first I have to find a good accountant as I've had bad experiences. That's why this forum is great as the opinions are objective (free advice is nice too) :)
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