Hello there,
Mr M is the sole shareholder of limited companies A and B.
Company A is in a software business, and Company B a property investment business.
Company A gives a loan to Company B, with the purpose of acquiring additional property.
Company A charges interest at market rate (3% + base) from Company B.
Are there any tax implications?
I appreciate the comments. Many thanks
Replies (3)
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Think this question is asked in one form or another quite regularly.
https://www.accountingweb.co.uk/any-answers/any-tax-effect-of-loans-betw...
I suspect the main issue will be impact on BADR in due course.
Are you sure Base Rate + 300bps is a commercial rate? Not sure there’s any requirement to charge interest.
Hi David,
Many thanks for your comment.
What impact would it have on BADR?
I've read elsewhere that charging interest at 'arm's length' rates would be required. Company B pays that amount on a mortgage to another company, hence the rate suggestion.
Thanks
I think - and only what I’ve seen on here - that having an additional activity (investment/non-trading) adversely affects the analysis. Obviously, do check the BADR conditions if that’s a potential issue.
The market rate that a lender with, presumably, a charge over the property, charges wouldn’t be the same as someone lending (again presumably) unsecured. As I said, not sure there’s any benefit in paying interest but obviously there may be reasons to do so.