Share this content

Opinion: Inter-company loans and close companies

Tax implications for loans between companies that belong to the same and sole shareholder

Didn't find your answer?

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)

Please login or register to join the discussion.

avatar
By David Ex
28th Jul 2021 11:56

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.

Thanks (0)
Replying to David Ex:
avatar
By thewill786
28th Jul 2021 12:58

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

Thanks (0)
Replying to thewill786:
avatar
By David Ex
28th Jul 2021 14:05

thewill786 wrote:

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.

Thanks (0)
Share this content