Loan my ltd money from personal mortgage additional borrowing

lee26g

Hi,
I am wondering how feasible it is to take out as additional borrowing on my residential mortgage and lend it to my rental company which has a business mortgage on a property already. I would use these funds to make a cash only property purchase.
I guess the issues here are:
1. Lender might not allow me to lend this money out
2. My loan to my company would be interest free or I would need to pay income tax on any interest. I would be paying the mortgage interest.
3. the company wouldn’t pay interest on the loan. This would mean that my company would not have interest to declare as an expense, leaving more profit, and thus more tax to pay.

Have I got this right. Any pointers would be much appreciated.

lee 

K_S

@lee26g Depends on your lender policy. This would be classed as borrowing for business purposes so not all mainstream lenders will allow additional borrowing / capital raise for this purpose.

lee26g

Ok thanks - let’s say the lender allows it.
I could lend my company with an interest rate of the mortgage interest + the 20% income tax I would pay... 

lee26g

Or perhaps a business loan makes more sense

K_S

@lee26g I am not an accountant, so please DYOR or get professional advice. What I have been told by some clients (this may not longer be applicable, and this may or may not meet your personal circumstances and tax situation) is that they use 'interest on qualifying loans relief' in the scenario where they capital raise remo on properties owned in their personal name and lend the raised funds to their own ltd. co. SPV used for lettings.

Have a read and see if your situation might meet the tests to qualify https://www.gov.uk/government/publications/interest-and-alternative-finance-payments-eligible-for-relief-on-qualifying-loans-and-alternative-finance-arrangements-hs340-self-assessment-helpshee/hs340-interest-and-alternative-finance-payments-eligible-for-relief-on-qualifying-loans-and-alternative-finance-arrangements-2021

lee26g

Thank you!

ACG

Have you got an accountant? 
It might be worth speaking to them.

I (or my ltd co) was going to lend my uncle some money last year. Legally I would have been obliged to charge him interest at a "normal" rate. I know what you are saying is the other way around, but I think you are probably missing that this is 2 separate transactions:
1) Bank gives you the money. 
2) You then give the money to your business. 

1) Can be overcome, I am doing a mortgage for someone at the minute who once he receives the money from the bank, will be investing the money in a renovation property. So is for business purposes. 
2) No idea, the legalities of this - but worth speaking to your accountant. 

lee26g

What k_S mentioned is referred to here:

https://www.fyldetaxaccountants.co.uk/property-articles/how-to-fund-your-new-property-investment-company-tax-efficiently-using-borrowed-funds/

I am still researching if this is indeed a viable option.

lee26g

No, I ditched my accountant as he was charging me £1k a year to file accounts which consisted of 12 transactions a year (rent payments).
I do the accounts myself now. Takes around 20 mins once a year 😜

ACG

Fair enough. It may be worth paying for an accountants advice/time on this. It should not cost a grand.