Interest free company loan - £185k

mtjones4

hi,

currently looking to purchase a repossession property and to ensure that i can react quick enough to the sale (haven't got a mortgage agreed in principle, nor have the cash funds) my employer has agreed to help me out. For reference i am currently a home owner with a mortgage on the property.

the property im looking to buy is £185k

- option 1 - my company buy the property cash with a legal agreement in place that says i will purchase the property from the company within x months/ years and an agreement that the company will sell the property to me in x months/ years for agreed value. my employer isnt looking to make any money out of me. this option means that the company will face stamp at the higher rate as a commercial purchase (£6500) plus then when i but the property from then (on the sale of my current home) i will have to pay stamp duty at the lower rate (£1100) making stamp duty a very expensive thing.

-option 2 - my company give me a 100% interest free loan to allow me to purchase the house with a signed agreement and terms that says i will pay back 100% in x years/ months or on the sale of my current property. this way i can purchase the property, pay stamp at the higher rate but claim if back on the sale of my house as long as it is within 3 years, in turn saving me around £6500 on stamp. This option will then be deemed as a taxable benefit on my P11D but unsure how to accurately work out the taxable sum (all at 40%). ive tried P11D working sheet 4 for interest free & low-interest loans but not confident im doing it correctly. ive tried to copy link but in new so i cant.

Basically i would like to know which way round will work out simplest from a legal point of view, and which works out the cheapest option - tax or stamp. i think the easiest legal option would be the loan rather then trying to draft an agreement that would protect both parties in option 1.

the sale of the house will be going through very quickly and as such would very much appreciate any advice

M

jonesMUFCforever

Why would they lend money to you for no collaterel or interest.
The tax man may be interested in this if it is some scheme to avoid tax.

Thrugelmir

Where is your Company going to get a £185k from?

mtjones4

because i work for a small company and they regard me as a key member of staff and would like to help me as long as its not going to cost them any money.

its not a scheme to avoid tax, its a case of i dont have the money to buy out right and they do. i have £60k equity in my current home and if the house sale was a traditional one rather then a quick turn around repossession i could quite easily sell my house, use the equity as a good deposit and get a mortgage as a normal chain purchase but thats not going to be fast enough in this instance. ive asked for advice on calculating the amount of tax i would pay after inserting the full loan amount on a p11D form, surely that tells you im / were looking to do everything above board? Company loans upto £10k even when they are interest free arent even deemed a taxable benefit, this differs due to the amount.

as soon as i sell my current home ill be getting a mortgage to pay back the loan in full.

response not particularly helpful, but thanks anyway.

mtjones4

thrugel - its money they currently have in the bank, theyre a pretty cash rich company. so much so that this £185k doesnt concern them (as long as they get it back in full by a pre-agreed date obviously)

dealer_wins

These sort of agreements tend to go very wrong, we see the resultant threads here almost daily.

TrickyDicky101

Official rate of interest for 2015-2016 is 3% so assuming that remains the same for 2016-17 then your annual benefit for teh £185k loan would be:

185000 * 0.03

=£5,500

Assuming a 40% tax payer this would cost you in cash terms:

5500 * 40%

=£2,220

cash per full year you had the loan (pro rata for fractional years).

mtjones4

dealer wins - from your experience what could go wrong

tricky dicky - thankyou! judging by the form and your sums, if i can pay off the loan faster the total cost of £2,220 would decrease. This option seems to be much more cost effective then paying £7600 in stamp.

has anyone got experience of claiming back stamp that is initially paid at higher rate following the sale of a property?

jonesMUFCforever

What could go wrong? You could refuse to pay for one thing - another you might find something major wrong with the property after you buy it meaning you might be stuck with it for a long time etc etc.

DCFC79

mtjones4 wrote: »

thrugel - its money they currently have in the bank, theyre a pretty cash rich company. so much so that this £185k doesnt concern them (as long as they get it back in full by a pre-agreed date obviously)

You say it doesn't concern them but I bet it will concern them when it isn't paid off by agreed date.

Cpu2007

why can't people simply answer users questions rather than questioning everything and speculating like their playing an investigation game.

If they don't have an answer, simply don't answer; if they believe the user is doing something wrong then don't answer.
Do you seriously think users will be admitting tax avoidance, money laundering or similar schemes if you were to ask them?
if they are ,that's their problem, he/she asked a specific question and NOT knowing where or why the money is being lend doesn't stop the question from being answered.