directors loan to purchase business

monkey8

I am interested in buying a business (3 stores) that have a combined net profit of around €90,000 for the last number of years.
It is a bit complicated as they are three seperate stores as part of a multinational chain that they are stepping down from and I will be taking over as independent practices.
I will need to take out a loan for the €300,000 and I have a salary where I am paying at the higher marginal rate.

I am looking for the most tax efficient way to pay back the loan.

IS it possible to form a company to take over the stores and borrow the money as a company loan guaranteed by myself or could I borrow the money personally and give the cvompany a directors loan?

My intention would be to pay the loan back from the net profits so that there would only be corporation tax of 12.5% taken from the profits before repayments rather than it coming from my salary and being taxed at 52%.

I am obviously going to pay for professional advice on this but would just love to get a few opinions as to the most tax efficient method.

Thanks in advnace.

CIARAN_BOYLE

monkey8 wrote: »

I am interested in buying a business (3 stores) that have a combined net profit of around €90,000 for the last number of years.
It is a bit complicated as they are three seperate stores as part of a multinational chain that they are stepping down from and I will be taking over as independent practices.
I will need to take out a loan for the €300,000 and I have a salary where I am paying at the higher marginal rate.

I am looking for the most tax efficient way to pay back the loan.

IS it possible to form a company to take over the stores and borrow the money as a company loan guaranteed by myself or could I borrow the money personally and give the cvompany a directors loan?

My intention would be to pay the loan back from the net profits so that there would only be corporation tax of 12.5% taken from the profits before repayments rather than it coming from my salary and being taxed at 52%.

I am obviously going to pay for professional advice on this but would just love to get a few opinions as to the most tax efficient method.

Thanks in advnace.

If you give a company a large director's loan you could have trouble due to there being some provision in the companies act about a director not giving a loan of more than 10% of net assets.

Also you want the loan within the company so that interest qualifies as an expense against net profit.

However it could be difficult for a new company to get a loan from a bank.

SRASE

Having the loan in the name of the company would be better as the interest would be allowed as a tax deduction in the CT computation.

You could give a Directors loan also but the interest would not qualify as a deduction for CT purposes. There use to be a personal tax deduction for loans taken out to invest in a business but this relief has been abolished.

There is no restriction on giving a loan to a company. The 10% restriction is on a company granting a loan and not on receiving a loan.

You may be entitled to either EIIS relief or SEED capital relief on your investment depending on the nature of the business and your personal circumstances.

As you say, you should get professional advice to go through all these options.

dogsears

CIARAN_BOYLE wrote: »

If you give a company a large director's loan you could have trouble due to there being some provision in the companies act about a director not giving a loan of more than 10% of net assets.

That provision in fact applies the other way around i.e. the restriction is on the company making a loan to a director.

SRASE wrote: »

You could give a Directors loan also but the interest would not qualify as a deduction for CT purposes.

Why not? The problem there would be that OP would be in receipt of interest that would be taxed at Income Tax rates.

Anyway, while I would lean towards taking the loan at company level if possible, there are many considerations and you (OP) need to be across a desk from someone giving you advice where you can ask and answer questions, consider courses of action, introduce other information not given (and possibly not yet available - e.g reaction of possible lenders to your application) etc.

It seems you like you already have a good grasp of what the options are and the main issues relating to them, so I'd say next stop is your tax advisor. Good luck.

nompere

dogsears wrote: »

Why not? The problem there would be that OP would be in receipt of interest that would be taxed at Income Tax rates.

I direct your attention to S.437 TCA 1997.

dogsears

nompere wrote: »

I direct your attention to S.437 TCA 1997.

Well aware of that. But it doesn't say interest paid to a director doesn't qualify for a CT deduction.

It says interest paid above a certain limit (that varies according to the situation) will be treated as a distribution. If that was the case, the excess interest above that limit would not be deductible for the company.

But if the interest paid is below the limit, there would be no restriction.

So the statement that interest paid to the director "would not qualify" is at best misleading.

SRASE

The interest charged by the bank would not be allowable as a CT deduction if it is in the name of the individual.

The Director could charge interest on their Directors loan but it is restricted under Section 437 to be the lower of 13% of the loan balance or the issued share capital of the company.

Mr. Incognito

I am locking this.

Get professional advice. Seriously.