A director draws a very significant amount from his company and uses the money as deposits for buy to let property purchases. Interest on the overdrawn directors loan account is charged by the company so no benefit in kind. Can the director claim a tax deduction against the rental income for the interest paid to his company?
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Why wouldn't he
be able to claim the loan interest? The fact that it's to his own company makes no different providing the loan is used for a qualifying purpose.
I think that it is claimable
Look it another way
Why do you think it is necessary to charge interest to avoid a BIK charge?
otherwise
How does he manage to repay the money within 9 months if he uses the money for buying btl properties - is there a question mark over the use of the money to finance the property acquisitions in the first place
Nothing wrong with that
He is paying interest on a loan for the purpose of buying rental properties. It is fully deductible, just like a mortgage or bank loan for this purpose would be.
why wouldn't you charge interest if
the client was a higher rate taxpayer?
Wouldn't he be saving tax at 40+% and the company paying at 20%?
I assume this is a one off because the loan is being repaid by the due date, but would it not be better to simply suffer the s455 and get it back at a later date when repaid, maybe by selling the property to the company (SDLT allowing of course)?
If the interest rate charged is high enough then the loss of interest on the s455 held by HMRC wouldn't be too bad would it?
itsnot just about interest
but the use of the money , if HMRC have got it it aint available
that's what i mean
by, if the interest rate is high enough, the variance between 40+% and 20% may be a better return than a normal investment.
Just a thought.
I agree with The Minion's analysis
Purely on technical grounds. We are, though, told that the amounts involved are substantial and whether one would be comfortable in letting HMRC look after one's money is a matter of personal choice.
In the interests of clarity my earlier post was not a comment on the merits or otherwise of charging interest with a view to obtaining a tax saving - I was merely covering the fact that many people overlook the fact that no BIK arises where the funds are borrowed for a qualifying purpose.
I am a bit confused here
the post says that the amounts are substantial but also repaid within the nine months etc.
If it is a one off then that is fine, but we aren't looking at a "repaid before - re-borrowed back after" situation here are we?
I am sure that in the main that doesn't work any more does it?