Should the LTC borrow?

[Arni]

We are getting our first investment property, and setting up a LTC. I'm trying to source an accountant to help out with a few questions but the bank has asked if the LTC will be the borrower AND owner, or just the owner (and myself and partner do the borrowing). He advised that its most common for LTC to just be the owner but our solicitor has suggested the LTC to be the Borrower too. Neither (and err, possibly rightly so) gives any reason why. Anyone have an opinions on what we should do and why? our turnaround time is quite short on this! thanks

[Rosco]

Hi Arni,

Yes, the LTC should be the borrower!

It is most common for the LTC to be the owner and borrower. But if you have some properties where you are happy for me to be the owner and you the borrower, please let me know as I would be very keen Hopefully my joke (accountants aren't very funny, so more attempted joke) highlights that the owner and borrower would normally be the same. Just makes sense!

Ross

[Craig Pope Mortgages]

Hi Arni, bit of a strange question from the bank, totally agree with Ross, with the LTC it needs to be owner and borrower. Ideally have a transaction account set up in the LTC's name so you can ring fence mortgage payments to come out of it, rental income to go into it and expenses for the LTC to come out of it. That way it doesnt get intermingled with personal stuff.

[klauster]

Even when the LTC is the owner and borrower, shareholders will be the guarantors. The bank will keep you looped.

[forbsie]

You could structure it either way, although seems simpler to have the company as the borrower as well.

Otherwise you borrow, then loan the money to the company and on charge the interest.

I would have thought the net effect is the same.

[Rosco]

Easiest to keep things simple.

Lots of paper work if you borrow as a shareholder and then lend to the Company. Also extra work with tax returns. Should have
- loan agreement between individual and company
- company should deduct withholding tax when paying interest to individual, or get exception certificate
- individual would need to return interest income and claim interest paid to the bank
- company would need to pay the individual, who then pays Bank

This would ensure all done right and interest is tax deductible.

MUCH easier to just borrow in the Company

Ross