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Where Taxpayers and Advisers Meet

Interest on directors loan account

antalya
Posts:11
Joined:Wed Aug 06, 2008 4:01 pm
Interest on directors loan account

Postby antalya » Tue Mar 21, 2017 9:17 pm

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
Posts:47
Joined:Tue Jan 31, 2017 10:41 am
Location:NE Scotland

Re: Interest on directors loan account

Postby greybags1 » Wed Mar 22, 2017 3:56 pm

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
Posts:11
Joined:Wed Aug 06, 2008 4:01 pm

Re: Interest on directors loan account

Postby antalya » Wed Mar 22, 2017 5:33 pm

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
Posts:13
Joined:Fri Jun 24, 2016 1:14 pm

Re: Interest on directors loan account

Postby Chewbacca11 » Thu Mar 23, 2017 4:04 pm

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
Posts:1232
Joined:Wed Aug 06, 2008 3:46 pm
Location:Lancashire

Re: Interest on directors loan account

Postby AvocadoK » Mon Mar 27, 2017 7:18 pm

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
Posts:3543
Joined:Sat Feb 01, 2014 3:26 pm

Re: Interest on directors loan account

Postby bd6759 » Tue Mar 28, 2017 7:11 pm

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


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