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Lending money to a limited company to save tax

Started by Gemma, January 17, 2024, 09:24:23 PM

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Gemma

I'm a basic rate taxpayer and I'm going to purchase a few Buy To Let properties.

I've looked at the pros and cons of sole trader vs limited company and the consensus seems to be that limited companies are only worth it for high rate taxpayers of 40%.

How about if I create a limited company and lend £100,000 to the company? I could then use the profit to pay myself back. So the first £100,000 that the company makes will be tax-free because it's a loan repayment. If I did this as a sole trader, then surely I would owe £20,000 more tax?

Is this right or have I missed something? It seems like a huge tax saving.

HandyMan


Simon Pambin

Quote from: Gemma on January 17, 2024, 09:24:23 PMSo the first £100,000 that the company makes will be tax-free because it's a loan repayment.

Tax free for whom? You won't pay tax on the loan repayments you receive but the company can't claim tax relief for capital repayments ... so you're not really any better off.

You could charge the company interest, which would be allowable for corporation tax, but then you'd have to pay income tax on the interest you receive ... so you're not really any better off.

There might be a small saving, depending on whether you've got any unused allowances, but it won't amount to a fat lot.

To be honest, if you've got £100k of capital sitting around, and a limited grasp of how it all works, you'd be best off paying a visit to a financial adviser.