12 April 2013    |    Uncategorized

Loan recycling

Sadly the Inland Revenue have signalled their intent to clamp down on loan recycling with effect from 20 March 2013.

The details aren’t available yet, but the Budget made it clear that general provisions to prevent this happening will be introduced soon.

Loan recycling involved the director borrowing money from the company at the start of the year and repaying it in full before the year end.  A classic trick was to then put the funds on deposit and use it as a mortgage offset, thereby dramatically reducing the mortgage interest.

Next year the process was repeated.

This is going to be forbidden.

However, giving even a little thought as to how this could be achieved raises all sorts of questions about the practicalities and as to how genuine loan arrangements will be excluded from any punitive provisions.

We’ll keep you updated when we have more information.

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