Using an inter-company loan to raise a mortgage deposit

If you have multiple company structures (e.g. a trading company you run a business through and an SPV limited company you buy property through), where one of your companies has a stronger level of capital than the other, you may want to use that capital as a deposit to buy property.

The issue then becomes getting the capital out of one company and into the other. You could extract the capital as cash to then transfer it, but that has tax implications. The alternative is to make an inter-company loan. 

An inter-company loan is a different transaction and has different tax implication which may be beneficial to you – make sure you seek professional tax advice on this before you get ready to apply for the mortgage you need.

As a specialist buy to let mortgage broker we have access to a large number of lenders who will accept this. Watch our video guide to understand the best way to go about this when it comes to accessing competitive mortgage interest rates.

Video guide transcript: Yes! You CAN use an inter-company loan as a property deposit – here’s how!

"Are you thinking about using an inter-company loan to raise a deposit to invest in property? 

"If that is the case, we've got plenty of lenders on our panel who would be able to consider that type of scenario.

"The way it works, is you effectively look to move the funds from, usually a trading company, into your SPV company, to use it as a source of deposit to purchase a buy to let property.”

(Special Purpose Vehicle, a limited company set up for a specific purpose, in this instance to invest in property).

“Not all lenders will accept that scenario. It's a more specialist one, but with us being a specialist broker, we've got plenty of lenders who we will be able to approach for you. 
“You would normally have to draw up an agreement between the two companies confirming the funds are being lent from one company to another. 

“Ideally it would help if you've got similar structure, or the same structure, between both companies in the sense of having the same directors and the same shareholders. 

“If that is not the case, there will still be some lenders, on the panel who would be able to agree to it, on an exception basis, but similar or same structure will definitely help and open you up to more options on the market.

“Some lenders may also ask you to sign a document which is called a “Deed of Subordination”, which effectively will mean you are signing a paper confirming that the mortgage that you will have raised, against your property, will need to be paid off before the inter-company loan is going to be paid back to the trading limited company.”

(A deed of subordination is a formal legal agreement where your company, as the lender of the deposit, agrees that their right to be repaid will sit behind another lender’s rights (the rights of the mortgage lender to be paid the monthly mortgage amount owed). In practical terms, it reshuffles the order of who gets paid first, if the borrower – your SPV – defaults, or the property is sold.)

“But, the bottom line is that it is a very popular way to raise the deposit this days. So, if that is something you are after, give us a call and we'll be able to help!”