Never a Lender or a Borrower be...........

...but it depends on the circumstances. This week we'll go through the benefits (or not) of lending and borrowing from a Property company.


Loans

This can be a complex subject, but I'll give a brief outline here but would advise discussing the subject in some detail with your accountant or advisor.
First, it is wise to lend the company the money it needs to get started, rather than putting it in by subscribing to shares, because the company can repay that loan in the future with no income tax charge on the lender.
It is also unwise to borrow money from the company, because the company itself has to pay a form of 'deposit' of 25% of the amount loaned to the taxman that is repayable when the loan is repaid.
If the company lends more than £5000.00 to you, you will be charged to income tax on the difference between the interest on the loan you pay to the company and the 'official rate' (currently 6.25%). So, if you have an interest free loan of say, £5001.00 for a year, you will pay income tax on £312.50, meaning £125.00 for a higher rate tax payer.
That may sound like a good deal, but be aware of COMPANY LAW. More sophisticated planning involves the company lending money and then writing off the loan. BUT this is an area where you must take specialist advice to avoid getting into serious trouble with both the tax man and COMPANY LAW.

Next time we'll cover the subject of 'liquidation of shares', but if you want the whole series of articles (including next weeks), please email helpdesk@taxrefundmoney.co.uk with subject matter "taxfacts 7" and we'll send it.