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.

To get actionable insight and practical guidance to support you day-to-day on 'Qualifying loan interest' click here.

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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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