Interest on directors loan account

[antalya]

With my wife (both directors) we have a company which manages and rents its own property. I think the company is classed as a investment company as opposed to a trading company. The directors loan account has a substantial balance owed to the directors and I would like to know whether we can charge interest on the balance by completing a CT61 and then reclaim the tax paid via our self assessment forms to take advantage of the personal annual first £1000.00p tax free interest allowance.

[greybags1]

I think you can. Depending on what your other sources of income you may be able to structure matters to utilise the savings starting rate of £5k as well. With regard to what rate of interest to charge it must be 'commercial'

[antalya]

I think you can. Depending on what your other sources of income you may be able to structure matters to utilise the savings starting rate of £5k as well. With regard to what rate of interest to charge it must be 'commercial'

Thank you for your reply. With regards to the £5K starting rate is this in addition to the £1K tax free allowance or inclusive.

[Chewbacca11]

Hi. I disagree. Savings covered by your allowance applies to interest from:

- bank and building society accounts
- savings and credit union accounts
- unit trusts, investment trusts and open-ended investment companies
- peer-to-peer lending
- government or company bonds
- life annuity payments
- some life insurance contracts

HMRC doesn't allow for interest from a loan you make to your own company from yourself to be part of your PSA. It wold be a round about way of taking money out of your firm tax free. You can't claim it back.

(But if anyone can share with me the text from the relevant manual allowing this, it would be useful and make clients happy. ).

[AvocadoK]

Hi
Happy to confirm that the savings allowance does apply here. Section 12B Income Tax Act 2007 says the savings allowance refers to savings income, and section 18 defines savings income to include all interest taxable under Ch 2 Part 4 ITTOIA 2005. This includes interest from your own limited company.
Your list looks like one on the HMRC website - and is not exhaustive.
AK

[bd6759]

Peer to peer lending is on the list, and is pretty likely to cover this scenario.