Loan to Company

[Sarah L]

If I were to lend money to a Company that I have a controlling interest in, and charge the Company a market interest rate. The Company then uses the money to purchase a property which is then rented out - Can I offset the interest charged against the tax owed on the rent.
In addition what are the tax implications of the Company paying me back the loan over time (ie like a mortgage, interest and capital).
Any advice please.
Thank you

[demetris]

The company will be able to deduct the interest it pays to you against its income to arrive at its taxable profits.

It might be preferable, though to purchase the property in your own name and rent it out to the company. That way, when you sell it you will be able to claim the higher business asset taper relief plus annual exempt amount against any capital gain you make. Whereas the comapny will only claim the lower indexation allowance.

In addition, by charging the company rent you will extract profits in a tax effective way as opposed to salaries that attract NI. Or, you can take dividends and avoid tax comletely if total income kept below higher income tax bracket.

From a tax point of view the best method would be for the property to be owned by a company pension scheme set up for the benefit of the directors as that would avoid capital gains and income tax completely.

I hope this helps.

Demetris Savva Ba FCCA
http://www.tax-accounting-london.info
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