limited company director renovating house!

[urz987]

Hey All…

I am a single limited company director, each year i make around 70-80k profit but take 50k as i dont need to take more and go into higher tax rate...

I have bought my first property on my own property and am doing a lot of work to it…this will mean spending a lot of money - around 20-25k … I was going to take out a personal loan for this, as if i take it out the business ill have to be taxed a large amount.

I normally take out 50k per year but think there is 20k work to do… so could i take it out as a loan to reduce the tax?…

£50-70k taxed.
20k at 33.75% = £6750 tax.

£50-70k loan.
20k loan = Santander
5.9% APR Representative (fixed)
£606.14Cost per month
The total amount repayable is £21,821.10.

£1,821.10 over amount.

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This means I save £4928.90 of tax this financial year.

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Is this fine to go ahead and do? or other suggestions? :)

Thanks!

What interest rate would apply if you used the company's money as a director's loan; then the company would need to pay tax on the interest received I think?

Note: I would aim to stay a basic rate tax payer within the next few tax years until the loan is repaid

If i use the 3 year model then

SANTANDER 3 YEAR
20k loan = Santander 5.9% APR Representative (fixed)£606.14Cost per monthThe total amount repayable is £21821.10.
YEAR 1 (in this financial year): £606 per month repayment september to april is 7 months so £4242 from the loan money to pay it off. Leaves £17579 to pay.
YEAR 2: take circa £41410 personally. £8789.5 to pay off the loan.
YEAR 3. take circa £41410 personally. £8789.5 to pay off the loan.
Loan paid off.

HOWEVER I am on a 2 year fixed mortgage finishing in june 2025 so this may affect me if I have to remortgage

Does this make sense?

I will ask my accountant I dont know.

There are 2 tax implications.

If the loan is over £10k then either the company has to charge you interest at at least the HMRC beneficial loan rate, or report the beneficial loan as a benefit in kind.

If the loan remains outstanding 9m after the company year end then the company has to pay s455 tax on the outstanding amount, currently 33.75% (ie the HR dividend rate). This is repayable to the company once the loan is repaid to the company (well, 9m after the end of the accounting period in which the loan is repaid).
You could possibly team & lade this depending on your dividend & salary declaration/processing and drawdown schedule.

Speak to your accountant.

Why are you building up cash reserves in the business?

You need to factor the whole life cycle of the money your company holds

You are only deferring the payment of tax not avoiding it

This year your company makes 70k
50k pay yourself ( gross and pay tax)
20k held by company

Breaks down as
50k pay yourself ( gross and pay tax)
13.3k still "owed" in unpaid net salary
6.7k unpaid tax

20k borrowed
20k repayed borrowing
1.8 k spend in interest from net pay

You are paying the loan from net take home pay

You would need to pay 2.25% on a directors loan to avoid a benefit in kind

Thanks all i hadnt thought about the directors loan, ill speak to my accountant about that.

Currently, but rates change.
https://www.gov.uk/government/publications/rates-and-allowances-beneficial-loan-arrangements-hmrc-official-rates/beneficial-loan-arrangements-hmrc-official-rates
Although if yiy have a fixed term written agreement you can lock in at current rates.