In short, the answer is yes.
Yes, your limited company can indeed loan money to another limited company owned by you or a family member.
From a legal standpoint, the director of the lending company must ensure that the business has sufficient funds to provide the loan without jeopardizing its own financial stability.
From a tax perspective, it is necessary to establish a loan agreement between the two businesses, ensuring that the interest charged reflects a fair and arm’s length lending transaction. The lending company will be required to pay corporation tax on any interest payments received, while the receiving company can claim tax relief on the interest payments made towards servicing the loan.
It is crucial to ensure that the loan is used by the receiving company for legitimate trading purposes and not for personal payments to you or your family members as directors or shareholders of the receiving company. This is to avoid being subject to the ‘s455’ anti-avoidance rules as failure to comply may result in the imposition of a director’s loan charge on the payment.
More information on reclaiming the section 455 director’s loan charge can be found on this link.
“Have questions or need further assistance? Reach out to us!”
