Deposits and Directors Loans
The deposit for a company buy to let almost always starts as the director's own money. Getting it into the company as a directors loan, and knowing how to draw it back out later, is one of the quiet advantages of the company route.
When a director puts their own money into their company to fund a buy to let deposit, it is recorded as a directors loan: the company owes the director that money. The company can later repay the loan to the director without it being taxed as income, because it is repayment of a debt rather than salary or a dividend. The deposit is usually 25% of the purchase price. The main tax point to watch runs the other way: if the company lends money to the director and it is not repaid within nine months of the year end, a section 455 charge can apply.
At a glance
- Deposit neededUsually 25% of the purchase price for company buy to let
- How it goes inAs a directors loan: the company owes the director the money
- Drawing it backRepayment of the loan, not taxed as income
- Record keepingTrack it in a directors loan account from day one
- The trapSection 455 charge if the company lends to the director and it is not repaid in time
- InterestThe company can pay the director interest, with tax consequences to check
Where a company deposit comes from
A newly formed SPV has no money of its own. So when it buys its first buy to let, the deposit, typically 25% of the price, has to come from somewhere, and that somewhere is almost always the director's personal funds. Rather than gifting the money to the company, the director lends it. The company records that it owes the director the amount, and that debt is a directors loan.
This is completely standard and lenders expect it. A company buy to let application funded by a directors loan for the deposit is the norm, not something that needs explaining away. What lenders do want is a clear source of the deposit funds and evidence the money is genuinely the director's.
This sits alongside the rest of the limited company property finance picture. For how much deposit you actually need, see can a limited company get a mortgage.
How a directors loan works
A directors loan is tracked in a directors loan account, a running record of money owed between the director and the company. When the director puts money in, the account shows the company owing them. When the company pays money out to the director, the account reduces. Kept properly, it is a simple ledger of who owes whom.
The powerful part for a landlord is the exit. Because the deposit went in as a loan, the company can later repay it to the director out of retained profit, and that repayment is not income. It is the director getting their own money back. That is a genuinely tax efficient way to extract cash from the company, and it is only available because the money went in as a loan in the first place.
| Direction of money | What it is | Tax treatment |
|---|---|---|
| Director to company | Funding the deposit as a loan | Not taxable; creates a debt owed to the director |
| Company to director (repaying loan) | Repayment of the directors loan | Not income; the director gets their own money back |
| Company to director (beyond the loan) | Company lending to the director | Can trigger a section 455 charge if not repaid in time |
The section 455 trap
The directors loan account can run in the company's favour too, and that is where the tax risk sits. If the company lends money to the director, so the director owes the company, and that balance is still outstanding nine months after the company's accounting year end, HMRC can charge the company a tax under section 455. The charge is currently 33.75% of the outstanding amount.
It is not a permanent loss: the section 455 tax is refunded once the director repays the loan. But it ties up cash and it catches landlords who draw money out of the company informally without treating it as salary, dividend or a proper loan repayment. The discipline is to keep the account clear or in the director's favour, and to document every movement.
Funding a deposit puts the loan account in your favour, which is fine. The danger is drawing money out beyond what the company owes you, so the account swings the other way and stays there past nine months. Track it with your accountant so a section 455 charge never sneaks up on you.
Getting it right from day one
Directors loans are simple to run well and painful to fix after the fact. The key is documenting the deposit as a loan when it goes in, keeping a clean loan account, and coordinating any drawings with your accountant so the tax treatment is deliberate rather than accidental.
- Record the deposit as a directors loan the moment the money enters the company.
- Keep evidence of the source of funds ready, as the lender will want it.
- Maintain a directors loan account that tracks every movement both ways.
- Repay the loan to yourself from retained profit when it suits, tax free as loan repayment.
- Never let the company lend to you and leave it outstanding past nine months after year end.
We structure the finance so the deposit and loan work cleanly with the lender's requirements. See the limited company buy to let mortgages page, size the loan a given rent supports in the limited company mortgage calculator, and for the wider tax rationale read section 24 mortgage interest relief.
Directors loans, section 455 and how you draw money from a company all have tax consequences specific to your position, and the rates and time limits can change. This guide explains the mechanism, not your liability. Speak to a qualified accountant on the tax, and let us structure the finance around it.
- Directors loan
- Money lent between a director and their company, recorded as a debt; commonly used by a director to fund a company buy to let deposit.
- Directors loan account
- The running record of money owed between a director and the company, tracking every movement in both directions.
- Section 455 charge
- A tax the company pays, currently 33.75%, if it lends money to a director and the balance is not repaid within nine months of the year end; refunded on repayment.
- Retained profit
- Company profit kept in the business after corporation tax, which can be used to repay a directors loan tax efficiently.
Deposits and Directors Loans: common questions
Can I use a director's loan to buy a house?
Yes, in the sense that a director commonly lends their own money to their company to fund the deposit on a company buy to let. The company records this as a directors loan, buys the property, and can repay the director later without that repayment being taxed as income. It is the standard way deposits get into a property SPV.
Is a loan from a director considered a deposit?
Effectively, yes. The director lends their personal funds to the company, and the company uses that money as the deposit for its buy to let mortgage. Lenders are comfortable with deposits funded by a directors loan, provided the source of the funds is clear. It is recorded as the company owing the director, not as the company's own money.
Is buy to let always a 25% deposit?
For company buy to let it is very close to a fixed rule: 25% of the purchase price, giving lending to around 75% loan to value. A few specialist lenders reach 80% at a higher rate, so a 20% deposit. Personal buy to let can sometimes go a little higher on loan to value, but 25% is the working assumption for a company purchase.
What is the nine month rule for a directors loan?
If a company lends money to a director and that loan is still outstanding nine months and one day after the company's accounting year end, the company pays a section 455 charge of 33.75% on the outstanding balance. The tax is refunded once the director repays the loan. It only applies when the director owes the company, not when the company owes the director for a deposit.
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