Company money to pay personal mortgage

Grumpy_chap

There are four ways the Owner / Director of a Ltd Co can take drawings from the business:

1. salary, subject to income tax, employee's NI, employer's NI
   
2. dividend, from retained profits after corporation tax, subject to dividend tax
3. pension contributions, which have rules regarding the subsequent access and may be subject to income tax at that time
4. loan to Director, which has specific rules, has to be at commercial rate and may give rise to BIK liability.

The OP needs to review the details of each option with their Accountant.  Particularly loan to Director, which has some complex nuances.

I suspect the reasons the responses may not have been as definite as the OP would wish is because of the complex rules around the Director borrowing from the Ltd Co.

One other possibility is relating to the use of business premises owned by the OP's parents.  The Ltd Co. should, by rights, pay market rent for the use to the premises.  This may give rise to a tax liability for the parents.  If the Ltd Co is not paying market rent, then the Ltd Co could start and the OP's parents may choose to gift the income (after any tax liability the parents incur) to the OP.

Finally, and I realise it is outside the scope of the question, the OP, the Ltd Co., or the OP's parents need to ensure they have some provision to cover the potential future CGT liability that may arise whenever the OP's parents divest themselves of the business premises.

born_again

As business would then own the house, what would happen if the company went bust?

Jaco70

Grumpy_chap said:

There are four ways the Owner / Director of a Ltd Co can take drawings from the business:

1. salary, subject to income tax, employee's NI, employer's NI
   
2. dividend, from retained profits after corporation tax, subject to dividend tax
3. pension contributions, which have rules regarding the subsequent access and may be subject to income tax at that time
4. loan to Director, which has specific rules, has to be at commercial rate and may give rise to BIK liability.

The OP needs to review the details of each option with their Accountant.  Particularly loan to Director, which has some complex nuances.

I suspect the reasons the responses may not have been as definite as the OP would wish is because of the complex rules around the Director borrowing from the Ltd Co.

One other possibility is relating to the use of business premises owned by the OP's parents.  The Ltd Co. should, by rights, pay market rent for the use to the premises.  This may give rise to a tax liability for the parents.  If the Ltd Co is not paying market rent, then the Ltd Co could start and the OP's parents may choose to gift the income (after any tax liability the parents incur) to the OP.

Finally, and I realise it is outside the scope of the question, the OP, the Ltd Co., or the OP's parents need to ensure they have some provision to cover the potential future CGT liability that may arise whenever the OP's parents divest themselves of the business premises.

Thank you for that, it’s very interesting, and I will have a chat with my accountant about it.

I’d have to disagree slightly about the company having a responsibility to pay rent for the premises though. The company has traded for many decades from these premises, which have always been owned (outright, never mortgaged) by either my parents or a combination of my parents and my dads now-retired business partner, and has NEVER paid any rent. Our accountant and HMRC are aware of this and have never suggested that there is a need for rent to be paid. The company obviously pays all costs (maintenance, business rates, insurance etc) related to the property. The only benefit to my parents is in the capital appreciation of the building.

justpassingthrough24

Jaco70 said:

Hoenir said:

Consult your accountant for proper advice. . 

On other issues I’ve found the advice on here quite helpful and ‘proper’, which is why I asked the speculative question. People are often quite knowledgeable, which is why forums like this are useful. Then I consult a professional before proceeding. 

But thanks for your advice 👍

I always find it odd when people reply to threads like this with "ask your accountant" as if no one had thought to do that already. I agree this place is extremely helpful for some informal advice and understanding. No one is taking the advice on here as gospel or pulling MSE forums up to court in a tax investigation.


Anyway, from my understanding, they have delibaretly made it so that company directors don't use accumulated funds in their company to pay off mortgages. The tax and added payments involved in taking out such a large amount from the company vs continuing regular mortgage payments + interest means you'd actually be better off continuing the mortgage payments or finding the funds elsewhere. But ask your accountant though

strawb_shortcake

I've wondered how these director loans work, I know someone who runs a business with another director, each year a director loan is on their accounts, both the same amount and repaid at identical levels. The latest loan is just shy of £100k - why would they do this is if it creates a BIK at this level? 
I'd naively assumed it was a different way of taking their income? 

MDMD

strawb_shortcake said:

I've wondered how these director loans work, I know someone who runs a business with another director, each year a director loan is on their accounts, both the same amount and repaid at identical levels. The latest loan is just shy of £100k - why would they do this is if it creates a BIK at this level? 
I'd naively assumed it was a different way of taking their income? 

As well as the BIK the company has to also pay a corporation tax charge of 33.75% on loans made to 5 or fewer “participators” - this is broadly applicable to company controlled by 5 individuals.

This is refunded but only when the loan is repaid and is to stop a director taking a permanent loan instead of taking a taxable dividend. There are bed and breakfasting rules to cover loans repaid and immediately taken out again.

https://www.bdo.co.uk/en-gb/insights/tax/tax-support-for-professionals/back-to-basics-tax-on-loans-to-participators

Grumpy_chap

strawb_shortcake said:

I've wondered how these director loans work, I know someone who runs a business with another director, each year a director loan is on their accounts, both the same amount and repaid at identical levels. The latest loan is just shy of £100k - why would they do this is if it creates a BIK at this level? 
I'd naively assumed it was a different way of taking their income? 

Is it a Director's Loan where the company lends money to the individual or a Director's Loan where the individual is lending money to the company?  

strawb_shortcake

Grumpy_chap said:

strawb_shortcake said:

I've wondered how these director loans work, I know someone who runs a business with another director, each year a director loan is on their accounts, both the same amount and repaid at identical levels. The latest loan is just shy of £100k - why would they do this is if it creates a BIK at this level? 
I'd naively assumed it was a different way of taking their income? 

Is it a Director's Loan where the company lends money to the individual or a Director's Loan where the individual is lending money to the company?  

It appears the directors are loaned money by the company, there were two directors, now four as their respective spouses are now directors 

Jaco70

justpassingthrough24 said:

Jaco70 said:

Hoenir said:

Consult your accountant for proper advice. . 

On other issues I’ve found the advice on here quite helpful and ‘proper’, which is why I asked the speculative question. People are often quite knowledgeable, which is why forums like this are useful. Then I consult a professional before proceeding. 

But thanks for your advice 👍

I always find it odd when people reply to threads like this with "ask your accountant" as if no one had thought to do that already. I agree this place is extremely helpful for some informal advice and understanding. No one is taking the advice on here as gospel or pulling MSE forums up to court in a tax investigation.


Anyway, from my understanding, they have delibaretly made it so that company directors don't use accumulated funds in their company to pay off mortgages. The tax and added payments involved in taking out such a large amount from the company vs continuing regular mortgage payments + interest means you'd actually be better off continuing the mortgage payments or finding the funds elsewhere. But ask your accountant though

👆This ….. if I read a forum post but don’t have an answer, I just don’t offer an opinion.

Other people don’t work this way. 

I asked a question about a holiday booking I had an issue with, on a different forum, and one of the answers began “why did you book with a shonky outfit like that”…….in what world do they think that is helpful ? 🤦🏻

Inbetweeners

Jaco70 said:

justpassingthrough24 said:

Jaco70 said:

Hoenir said:

Consult your accountant for proper advice. . 

On other issues I’ve found the advice on here quite helpful and ‘proper’, which is why I asked the speculative question. People are often quite knowledgeable, which is why forums like this are useful. Then I consult a professional before proceeding. 

But thanks for your advice 👍

I always find it odd when people reply to threads like this with "ask your accountant" as if no one had thought to do that already. I agree this place is extremely helpful for some informal advice and understanding. No one is taking the advice on here as gospel or pulling MSE forums up to court in a tax investigation.


Anyway, from my understanding, they have delibaretly made it so that company directors don't use accumulated funds in their company to pay off mortgages. The tax and added payments involved in taking out such a large amount from the company vs continuing regular mortgage payments + interest means you'd actually be better off continuing the mortgage payments or finding the funds elsewhere. But ask your accountant though

👆This ….. if I read a forum post but don’t have an answer, I just don’t offer an opinion.

Other people don’t work this way. 

I asked a question about a holiday booking I had an issue with, on a different forum, and one of the answers began “why did you book with a shonky outfit like that”…….in what world do they think that is helpful ? 🤦🏻

It's a public forum and the nature of the beast - you will get opinions whether you want them or not.