Lee Sharpe looks at loans to directors and points out that they can be tax-efficient if managed effectively.
Loans to directors often cause concern for advisers because of the tax implications that follow them. However, they can be made to work efficiently for director shareholders provided they are carefully monitored and maintained.
The tax charges
- Loans to Participators (CTA 2010, s 455) – where a loan to a ‘participator’ (in this case, a shareholder) in a close company that was outstanding at the end of the accounting period remains outstanding more than nine months and a day after the end of that accounting period, the company has to pay ‘section 455 tax’ to HMRC. The rate for loans made on or after 6 April 2016 increased from 25% to 32.5%.
