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  • Tax

    Is tax payable on an intercompany loan?

    It's quite common when one party owns a trading company to lend money to a SPV. I see this a lot with my mortgage cients but have today seen conflicting advice from two accountants on this.

    One says tax is payble and the other doesn't!

    if you have done this, did you pay tax?

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    Regards Simon Searchlight Finance

    Fulfil Your Property Ambitions

    01565 654005

    Searchlight Finance Ltd is authorised and regulated by the Financial Conduct Authority reference 743220.

    HMO Finance I Complex BTL I Bridging Finance I Development Finance

    Buy to Let I Portfolio Finance I Commercial Mortgages

    Hi Simon

    It all depends upon how the companies are structured.  If they are held as part of a Group structure i.e. either one owning the other or both owned by a holding company then there is no tax on the inter company loan.  The reason being that it remains within the Group.

    However if the companies are owned by the same individual or individuals (whether in the same shareholding ratio or not) then the loan is deemed under the legislation to be a loan to the shareholders of the company making the loan.  Accordingly the company would then have to pay tax under s455 and s464a Corporation Tax Act 2010.  This tax charge is currently 32.5% of the amount of the loan.  This tax charge is repayable to the company when the loan is repaid by the shareholders to the company.  One other issue arising out of this is that where the loan exceeds £10,000 then the shareholder receiving the loan will also be subject to income tax on the beneficial loan.

    My advice would be to structure the SPV as part of a group so as to avoid the s455 and s464a CTA 2010 tax charge.

    Regards

    Nigel

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    Thanks Nigel

    Your reply is what I expected but I've seen other accountants and clients themselves who don't think this is the case and just create an intercompany loan between the two. Worrying times if it's not been done the right way.

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    Regards Simon Searchlight Finance

    Fulfil Your Property Ambitions

    01565 654005

    Searchlight Finance Ltd is authorised and regulated by the Financial Conduct Authority reference 743220.

    HMO Finance I Complex BTL I Bridging Finance I Development Finance

    Buy to Let I Portfolio Finance I Commercial Mortgages

    Debbie Franklin The legislation can only apply, however, where any money/value actually ends up in the hands of the participator/associate. https://www.gov.uk/hmrc.../company-taxat...l/ctm61580

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA