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Beneficial borrowings

07 January 2009
Issue: 4188 / Categories: Forum & Feedback , Employees , Income Tax

Borrowing by a director or shareholder from a limited company can be tax advantageous, but can such loans be ‘bed and breakfasted’ to avoid a charge under TA 1988, s 419? The replies consider the possibilities and warn against this. The accounting disclosure requirements could result in an HMRC enquiry and lead to interest and penalty charges.

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If Mr A borrows say £50 000 from his company to fund the purchase of a property which is rented out my understanding is that no beneficial loan benefit arises at the official rate because the loan is a ‘qualifying loan’. The problem with this arrangement is that if the loan is not repaid within nine months of the company’s year end TA 1988 s 419 tax will need to be paid over to HMRC.

Let’s say instead that Mr A takes out a mortgage of £50 000 to purchase the property and the mortgage provider allows savings to be offset against the mortgage. Mr A then borrows £50 000 from his company and...

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