Director's loan deposits: funding your SPV's buy-to-let purchase

A director's loan deposit is personal money a director lends to their limited company so the company can fund a buy-to-let purchase, recorded as a credit on the director's loan account and repayable to the director tax-free as the company generates profit. It is not a lender product, not a tax scheme, and not exotic: it is the standard deposit route on the overwhelming majority of SPV buy-to-let mortgages we arrange.

It is also widely misunderstood, partly because most of what is written about director's loans, the 9-month rule, benefit-in-kind charges, Section 455 tax, concerns loans running the other way, from company to director. This guide covers the direction that matters for property: your money going in.

What is a director's loan deposit?

When you transfer personal savings into your SPV's bank account to fund a deposit, you have made the company a loan. The company now owes you that money, and the debt is tracked in the company's books as the director's loan account (DLA). Nothing about the transfer is taxable in either direction: you have not given the company income, and the company has not received a gift.

Three features make this the default structure for SPV mortgage deposits:

• Lenders expect it. A new SPV has no money of its own; underwriters assume the deposit arrives as a director's loan and have standard processes for it.
• It preserves your claim. Unlike subscribing for shares, a loan keeps the money owed back to you personally, ahead of any dividend planning.
• Repayment is tax-free. This is the quiet advantage, covered below, and a major reason the SPV structure compounds well for higher-rate taxpayers.

How does the money actually move into the SPV?

The mechanics are deliberately boring. You transfer the funds from your personal account to the company account, ideally in one step, before the mortgage application goes in. You and the company sign a short loan agreement recording the amount, that the loan is interest-free (usually), and that it is repayable on demand or as company cash flow allows. Your accountant records the credit to the DLA in the company's books.

What the mortgage lender then checks is provenance: not just that the company has the money, but where your money came from. Expect to provide three to six months of personal bank statements showing the savings building, or the completion statement if the funds came from a sale. The company-side loan agreement does not replace that personal-side tracing; you need both. Our guide to the deposit for a limited company buy-to-let covers the evidencing standards in full.

One packaging point from our broker desk: lenders also want comfort that your loan will not compete with their mortgage. Many ask the director to confirm, sometimes by deed, that the director's loan will not be repaid in a way that prejudices the mortgage, or that it is subordinated to the lender's debt. This is standard, sits alongside the personal guarantee directors give on company borrowing, and is not a reason to avoid the structure.

Can the company repay the director's loan tax-free?

Yes, and this is the feature worth planning around. The company's repayments of your loan are a return of your own capital, so they arrive with no income tax, no dividend tax and no National Insurance. Compare the two ways of extracting £50,000 of accumulated rental profit from an SPV as a higher-rate taxpayer:

• As dividends: dividend tax at 33.75% above the £500 allowance takes roughly £16,700.
• As director's loan repayment: £50,000 arrives intact, because the company is simply paying you back.

A landlord who lends £70,000 into the company on day one therefore has £70,000 of future profit extraction sheltered from dividend tax, drawn down at whatever pace company cash flow allows. The company still pays corporation tax on its rental profit first; the relief is on the second layer, the extraction. Once the loan account is exhausted, further extraction reverts to dividends or salary, which is when the comparison with personal ownership genuinely needs modelling. Our limited company vs personal calculator builds the loan repayment phase into the comparison.

This is general guidance rather than tax advice; the sequencing of loan repayment, salary and dividends interacts with your wider position, so confirm the plan with your accountant.

Can you charge the company interest on your loan?

You can, and occasionally it is worth it. Interest the company pays you is a deductible expense against its rental profit, and taxable in your hands as savings income, where the personal savings allowance and the savings starting rate can shelter some or all of it depending on your other income. The company must deduct basic-rate tax at source and file quarterly CT61 returns to HMRC, which adds administration most single-property SPVs prefer to avoid.

Two cautions. First, the rate must be commercial; HMRC can challenge excessive interest as disguised extraction. Second, some mortgage lenders take a dim view of interest-bearing director debt sitting behind their loan, so disclose it. For most cases an interest-free loan with tax-free capital repayment is simpler and nearly as efficient. Again, one for your accountant to confirm against your numbers.

What about a loan from another company you own?

Where the deposit sits in your trading company rather than your personal account, an intercompany loan into the SPV is the parallel route. Lenders accept it with a clean structure: a written loan agreement between the companies, evidence the trading company's cash is unencumbered, and clarity on repayment terms. Some prefer a formal group, with a holding company owning both entities, because dividends can then move the money without debt at all. The structure choice has corporation tax and commercial consequences on both sides, so it is a three-way conversation between us, you and your accountant before the application goes in.

What does not work is informality: money hopping between companies with no paperwork reads as a provenance problem at underwriting, and it is one of the recurring causes in our guide to why limited company mortgage applications get declined.

What are the risks and the common mistakes?

• Creditor exposure. Your loan ranks behind the mortgage lender and other secured creditors if the company fails. Money lent into the company is genuinely at risk in a way personal savings are not.
• Undocumented loans. No agreement, no DLA entry, no clean transfer trail: each one slows underwriting and weakens your own claim to tax-free repayment later.
• Mixing directions. If you also borrow from the company, an overdrawn DLA triggers the Section 455 charge (33.75% of the balance unpaid 9 months and 1 day after year end) and possible benefit-in-kind charges on loans over £10,000. Keep the deposit loan ring-fenced and the records clean, per HMRC's requirements on director's loan records.
• Repaying too aggressively. Stripping cash out as fast as rent arrives leaves the company with no buffer for voids, repairs or rate rises. Lenders notice thin company balance sheets at remortgage.

Structured properly, the director's loan deposit is the cleanest piece of the limited company buy-to-let stack: simple to document, familiar to every lender, and the foundation of tax-efficient extraction for years afterwards. We sanity-check the deposit route alongside the mortgage on every case, fee-free.