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Gift from family for commencing business

Hi there,

My family(non UK citizen) lives in Pakistan and is willing to lend me (British citizen) money to start franchise so they will be contributing 30k for 100k loan, my question is if i pay interest on 30k to my family will that interest be treated as expense to reduce the company's profit and what will be the tax implications for my family.

Thanks

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17th Mar 2018 16:49

Assuming that you are setting up a company, you can pay interest on the loan, although you will have to deduct 20% tax from the interest payments and pay that to HMRC completing at CT61 form each quarter). Assuming the interest is at a commercial level, it (including the tax deduction) will be tax deductible for the company.

How it will affect their personal tax situation is a Pakistani tax question than UK- I’ll be surprised if anyone on here will know.

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By Kaymir
to atleastisoundknowledgable...
17th Mar 2018 17:56

Very informative answer.... much obliged

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17th Mar 2018 17:18

You say it's a gift and then it's a loan.

Which is it ?

If it really is a loan and you pay interest, I agree with atleast above.

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By Ruddles
17th Mar 2018 17:42

You could always use some of that £100k to pay for professional advice, ie engage an accountant/tax adviser.

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By Kaymir
to Ruddles
17th Mar 2018 17:55

Lol.... thx for ur advise i shall be doing that anyway once the business is up n running

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By Ruddles
to Kaymir
17th Mar 2018 18:08

By which time it may be too late.

Your choice.

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to Ruddles
17th Mar 2018 18:46

Agree with Ruddles - I ALWAYS say to people about to start a business “get an accountant before ANYTHING happens”. The right structure from the start could save you thousands. You’re going to get an accountant anyway, so you may as well let them sort things out for you from the beginning (including processes for helping them to reduce your fees!).

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By Matrix
17th Mar 2018 20:35

I hope you are taking financial and legal advice to determine if the franchise is the optimal route for you.

Regarding the withholding tax on interest referred to above, the lender may be eligible for the reduced treaty rate of 15% upon completion of the relevant forms. The lender should seek local tax advice to determine the treatment of the interest in Pakistan.

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By kaff
18th Mar 2018 14:46

When you get the legal/accountancy advice, make sure you get the advisor to explain the difference between a loan to you and a loan to a limited company which you own (assuming that that’s what you mean when you refer to ‘company’).

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