Personal mortgage for ltd company property buy.

Can a ltd company pay a personal mortgage used to pay for a property purchase in ltd company

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I am going to remortgage my house (currently no mortgage) and use the money to buy a house under a ltd company. Can the monthly payments (interest and capital) be paid via the company account as the loan is for the company?

Replies (21)

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By SXGuy
24th Jun 2024 08:19

So you are loaning your company money to invest in a property.

In answer to your question, probably yes.

But you'll need a loan agreement between you and the company setting out the amount to repay and interest.

This gets paid to you, and you pay the loan back.

Don't forget to appoint a solicitor to handle the draft agreement and don't forget interest is taxable on you personally.

Prob a ton of other things so find an accountant as well.

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By Sj00123
24th Jun 2024 08:38

Thanks for your reply.

As the interest is going directly to the mortgage company, why would I have to pay tax on the interest. I am not making money on the interest.

The whole reason of setting up a ltd company is to avoid paying tax on the interest via section 24.

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Replying to Sj00123:
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By SXGuy
24th Jun 2024 09:35

Sorry I miss read your question. I thought you wanted to charge interest on the loan to the company.

You meant mortgage capital and interest. In which case ignore my comment about being taxable on you, but please find a solicitor and accountant.

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Replying to Sj00123:
By ireallyshouldknowthisbut
24th Jun 2024 10:20

Sj00123 wrote:

Thanks for your reply.

As the interest is going directly to the mortgage company, why would I have to pay tax on the interest. I am not making money on the interest.

The whole reason of setting up a ltd company is to avoid paying tax on the interest via section 24.

You dont pay tax on interest via section 24. This seems to be a common bizzare view. What you actually get is a basic rate tax deduction. But hey dont belive what you read on the internet about tax most of it it wrong.

What I will say however is you need to consider very hard not just the current weird rules on interest relief, but much more widely the full tax cost of using a limited company in the lifetime of this investment, in particual with respect to profit extraction and capital taxes. Which of course are likely to all change within 6 months.

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Out of my mind
By runningmate
24th Jun 2024 08:42

Please, please get some proper (paid for) advice before you do anything.
RM

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Replying to runningmate:
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By Sj00123
24th Jun 2024 08:49

Thanks and will do.

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Replying to Sj00123:
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By Sj00123
24th Jun 2024 08:49

Just wanted to see if anyone one else has done this and their feedback.

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Replying to Sj00123:
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By FactChecker
24th Jun 2024 11:49

I'm sure others will have done this (it's just 'so obvious' isn't it), but:
a) no professional is going to admit advising someone to do so (unless the property being purchased is on Hooky Street and the advisor is Del Boy);
b) no D-i-Y'er is going to put up their hands and wash their dirty linen in public.

There tends to be a LOT more downsides than the reverse but, as others have said, get some professional advice pertinent to your specific circumstances.

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By paul.benny
24th Jun 2024 08:53

It's rarely a good idea to own residential property in a company. Yes, the interest may be deductible (for now) but your profits from the letting are taxable in the company and then taxable when you extract them. Ditto any gains on sale.

As for your present plan, well, a mortgage is a loan secured on a property owned by the borrower. But you are planning to borrow and then lend funds on to a company which will be buy a property. Lender has far weaker security that's more complex to enforce.

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Replying to paul.benny:
By Ruddles
24th Jun 2024 12:28

paul.benny wrote:
Lender has far weaker security that's more complex to enforce.

Why? Borrowings will be secured over the borrower's own property. What the borrower does with the funds - lends to company, pays for extravagant wedding, flash car etc etc doesn't affect the status/enforceability of the security.
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Replying to Ruddles:
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By paul.benny
24th Jun 2024 12:48

You're right - I misread the OP.

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Replying to Ruddles:
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By FactChecker
24th Jun 2024 13:09

It's years since I've seen one of these re-mortgage offers (and never used one myself), but they certainly used to ask (as part of the application) what was the purpose - as in explicitly for what were the funds intended?
And, anecdotally, the answer given could be reason enough to reject the application.

If still the case, would that make the answer a basis for subsequent cancellation of the loan if the claimed purpose was shown not to be true?
And if the purpose was openly declared (as lending the funds to a company to buy another property) would the application be likely to be successful?

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By Tax Dragon
24th Jun 2024 10:59

Sj00123 wrote:

As the interest is going directly to the mortgage company, why would I have to pay tax on the interest. I am not making money on the interest.

You have an income and a matching expense. If the expense cannot be deducted from the income, then you can have a tax charge. In your case:

Step 1: you borrow, you are responsible for repaying your lender including the interest the lender may charge you. You may find yourself occasionally paying that interest if your company cannot afford to.

Step 2: you lend the money you borrowed to your company. When it can afford to, your company pays the interest the lender charges. On those occasions, you don't have to pay - so you are 'up' by that amount. That amount may be treated as your income.

NB: I am not describing your tax position; I am addressing the question you asked SXGuy.

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By Tom+Cross
24th Jun 2024 11:31

In addition, as it is likely that HM Government will be under a fresh administration, from 5th July, there could be myriad changes to the taxation system. Whilst I doubt they will be simplified, it could be the wrong time to be making ill-thought decisions.
Just saying.

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By More unearned luck
24th Jun 2024 11:33

If this was a Good Idea then you would want the company to be the only borrower. It would, of course, pledge the new house as primary security and perhaps you could offer you house as collateral security or give a personal guarantee or both.

In addition to double taxation, have you considered:
Stamp taxes
ATED
BIK (if you are temped to occupy the company's house)
That the law may change at any time (by a government that might consider landlords who own via companies to be devils incarnate).

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Replying to More unearned luck:
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By Paul Crowley
24th Jun 2024 18:32

The Tories thought landlords needed to pay more tax.
Labour may be more keen to go in that direction.
Is the company going to be a close investment company?

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Replying to Paul Crowley:
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By Sj00123
24th Jun 2024 19:02

Just a standalone ltd buy to let for 1 house.

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Replying to Sj00123:
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By FactChecker
24th Jun 2024 20:20

Ah, an SPV of course!

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Replying to Sj00123:
DougScott
By Dougscott
24th Jun 2024 21:32

The mortgage loan is to you as an individual and you are personally responsible for repaying that loan.

You can however use the money raised and lend it to the company at a reasonable interest rate becuase your loan to the company will be unsecured. So 8% or more could be quite reasonable at the moment. If your loan agreement to the company is suitably flexible you can take capital repayments at anytime with no tax consequences. However when the company pays you interest then the company must deduct tax at 20% and submit a CT61 and pay the interest to HMRC. The gross interest payable is deductible in the company's CT computation. The interest credit may be recoverable in your tax return if your earnings are low enough. Whether all this is worth doing or not should be discussed with your accountant, you don't really need a solicitor. It can make sense - I have a client who does exactly this and he recovers all tax deducted on interest deducted by his company because his earnings are under £18570.

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Replying to Dougscott:
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By Sj00123
25th Jun 2024 15:22

Does seem like to much bother. My earnings are higher than if your clients and any interest payments could push me into the 40% bracket.

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By Sj00123
27th Jun 2024 09:55

Thanks to all that have commented. I have run some calcs and taken your advice. For now I don't think the company route is the way to go.

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