How to create a Directors Loan when Incorporating?

How to create a Directors Loan when Incorporating?

8:59 AM, 21st January 2025, About 5 hours ago 1

Text Size

Hi, We will be Incorporating a single BTL property into a Ltd company – paying due SDLT and any applicable CGT.

We have about 50% equity in the property and would like for this to be treated as a Director’s Loan within the company.

My question is: In order to do this, do we need to take a loan or anything else, or could the company simply take a mortgage (as a purchase) for the remaining 50% which is currently mortgaged personally, and the equity be treated as a Director’s Loan?

Does there need to be a transaction for the Directors Loan, or would the transfer of asset be enough?

Many Thanks

Raj


Share This Article


Comments

Mark Alexander - Founder of Property118

Become a Member

If you login or become a member you can view this members profile, comments, posts and send them messages!

Sign Up

10:16 AM, 21st January 2025, About 4 hours ago

Hi Raj,

When incorporating your buy-to-let property into a limited company, and treating the equity as a Director’s Loan, here’s how you can structure it:

Treating Equity as a Director’s Loan:

The equity in the property (calculated as the market value minus the outstanding personal mortgage) can be treated as a Director’s Loan from you to the company. This does not require a separate cash transaction, as the transfer of value (equity) is sufficient, provided it’s correctly documented.

Funding the Purchase:

The company can secure a mortgage to pay off the existing personal mortgage and any additional cash you wish to take out of the deal. The remaining portion of the purchase price, representing the equity, forms the Director’s Loan. Ensure the property is sold to the company at its market value.

Documentation:

A Director’s Loan Agreement should be drawn up, outlining the loan amount, repayment terms, and any applicable interest. Proper documentation ensures compliance with company law and avoids future complications.

Mortgage Lender Considerations:

Not all mortgage lenders are willing to finance such arrangements. It’s crucial to work with a specialist mortgage broker who can identify lenders familiar with incorporation-related transactions.

Professional Support:

Engage an accountant experienced in property incorporations to handle the financial and tax aspects. You have already explained that you will pay CGT and you only have 60 days to account to HMRC for this. Additionally, a legal professional can assist with the transfer of ownership, preparing the necessary agreements and the SDLT payments for the company.

This approach ensures that your equity is properly recognised as a Director’s Loan within the company, with minimal disruption to your overall financing.

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership

or

Don't have an account? Sign Up

Landlord Automated Assistant Read More