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Loan from one company to another, same director

Loan from one company to another, same director

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Hello

I have a client who is a contractor and earns a substantial amount of money in his regular job, so the the income received from his own consultancy via his limited company has been untouched for several years.  There sits around 200k in his company bank.
Now he doesn't need to access the company money and in a normal situation, he would draw on it after he retires.
However, recently he has thought about going into property development, starting with converting hsi own property from a 1 bed to a 4bed so he can let it.
This will cost around £110k.  He wants to set up a separate property development company, and loan from his other company to this new company.  The new company will repay the loan over a number of years.
What are the possible issues? Could there be s455 loan issue? BIK (he will charge interest on the loan)? Anything else?

Replies (5)

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By atleastisoundknowledgable...
27th Sep 2019 21:55

Coming to company loan, I would say there’s no tax issue at all.

It’s the money’s use in propco that will have consequences - spending £110k on his own property? Tut tut

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Replying to atleastisoundknowledgable...:
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By Russell Huk
27th Sep 2019 23:54

Its a one bed that he will re-develop to 4 beds and then let it. I cant see the problem here?

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Replying to Russell Huk:
Psycho
By Wilson Philips
28th Sep 2019 07:41

Who owns the property? Think about the consequences of that.

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RLI
By lionofludesch
28th Sep 2019 09:02

Is this development company buying his 1 bed house or what ?

If not, as implied above, I can't believe you haven't spotted a problem.

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By Adam12345
28th Sep 2019 10:23

The loan between two companies isn't the issue here. It is the fact the company is developing an asset that it doesn't own.

Two options that spring to mind is sell the property to new co (SDLT & CGT - possible PPR) or the company will be offering its services to develop the property (all sorts of issues with the latter in particular VAT).

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