Rental property in newly set up limited company

The property is in the company's name but the mortgage will be in the director's own name.

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If the director loans the funds to the company to buy the property and the company transfers amounts to the director each month for the loan repayments, how are these transactions to be treated in the director's personal tax return?

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By ireallyshouldknowthisbut
13th Feb 2020 15:59

*edited as misunderstood the question*

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By The Dullard
13th Feb 2020 11:54

Are you saying that the director/shareholder has raised a mortgage on another property in order to lend money to the company in order for it to purchase the property in question?

Is the property going to be let to unconnected tenants?

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Replying to The Dullard:
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By suelight
13th Feb 2020 12:02

yes and yes

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By The Dullard
13th Feb 2020 12:11

Then director charges the same amount of interest to the company and declares the interest paid by the company to him/her on his/her tax return and claims relief for the interest (under s 383 et seq).

On the plus side, the director might end up £500 @ 40% better off. On the minus side, the company will have to deduct an account for basic rate tax on the interest payments which the director will then have to deduct from his/her final tax liability.

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By johngroganjga
13th Feb 2020 12:17

To answer your question, there are no entries to be made on the individual's tax return in relation to loans by him to his company or repayments of those loans by the company.

As others have said, there are many other things to consider.

Have the mortgage company been told that the property their debt is secured on is not owned by the person they are lending the money to? Has the borrower by any chance represented to them that he is the owner of the of the property? Or is it perhaps not a mortgage at all, but just an unsecured personal loan?

The interest the individual pays on the borrowing, and any interest he receives from the company, may well need entering on his tax return.

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Replying to johngroganjga:
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By The Dullard
13th Feb 2020 12:22

It's a mortgage secured on a personally owned property the funds from which have been loaned to the company, and there will be back to back interest payments that will necessitate tax return entries. See the OP's "yes and yes" above.

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By Justin Bryant
13th Feb 2020 14:52

This could be a nominee mortgage arrangement (search this website), so that all entries hit only the company's P&L/B/S and the nomineeship is essentially ignored re tax etc. A bit like how some flat management companies operate.

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By The Dullard
13th Feb 2020 14:55

Except that the OP's confirmed that it isn't.

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By Montrose
15th Feb 2020 22:34

The simple answer is as "the Dullard" has outlined. But a twist-why charge the company interest? If company cash flow is just used to repay the loan capital then he/she will not pay any tax on these repayments, although over time the s.383 relief will wither away as the quantum of the loan would reduce. The quantum of the loan repayments would be constrained only by company cashflow.

Perhaps that is what you had in mind anyway

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