Director's Loan Account Property Company UK 2026 — DLA Mechanics, Section 455 Tax Charge, Benefit in Kind, 9-Month Rule and Anti-Avoidance for Buy-to-Let SPV Landlords

Credit DLA mechanics, overdrawn DLA, section 455 charge, BIK, 9-month rule, 30-day anti-avoidance and section 458 reclaim

The complete framework for director's loan accounts in property limited companies:

• Credit DLA mechanics, interest on director's loan to company and disclosure obligations: CREDIT DLA — how it works: a credit DLA arises when the director has lent money to the company — for example: (a) the director contributes personal funds as a loan (not share capital) for a property deposit or purchase costs; (b) the director pays company invoices from personal bank account (expenses reimbursement pending — the company temporarily 'owes' the director the amount paid); (c) dividends are formally declared but not drawn — the declared dividend sits on the DLA as a company liability owed to the director. The credit DLA is a liability of the company and an asset of the director. Repayment of a credit DLA: the company repays the director's loan credit balance — this is NOT a distribution, NOT a dividend, NOT salary. It is a tax-free return of the director's own capital. No tax arises on the director and no tax arises for the company on repayment of a credit DLA. Director charging interest on a credit DLA: the director can agree with the company that interest will be charged on the outstanding credit DLA balance — at a commercial rate. The interest paid by the company to the director: (i) is a finance cost for the company — deductible from corporation tax profits (CT); (ii) is income for the director — taxable as savings income via self-assessment (the director's personal savings allowance applies: £1,000 for basic rate taxpayers; £500 for higher rate taxpayers; nil for additional rate taxpayers from April 2016); (iii) must be paid to the director net of 20% income tax at source (unless the director applies to HMRC for a gross-paying exemption (large interest payments) — most property company directors apply to HMRC to receive interest gross). The interest rate must be arm's length — typically between 4-8% in 2025/26 depending on the loan term and security. An excessively high interest rate could be challenged by HMRC as a non-arm's-length arrangement. Companies Act 2006 s.413 requires the details of any director's loan above £15,000 (or the largest outstanding balance in the year if lower) to be disclosed in the company's annual accounts (loans that were outstanding at any point in the financial year must be disclosed in the notes to the accounts — name of director; balance at year start; new loans; repayments; balance at year end).
• Overdrawn DLA, section 455 CTA 2010 tax charge, BIK, 9-month rule, 30-day anti-avoidance and section 458 repayment relief: OVERDRAWN DLA — how it arises: an overdrawn DLA arises when the director has drawn more from the company than they are entitled to in salary and formally declared dividends. Common causes: (a) the director pays personal expenses from the company's bank account (e.g., personal car expenses; personal credit card bills; personal mortgage payments); (b) the director takes regular cash drawings without formally declaring dividends; (c) the director charges personal items to the company. The overdrawn DLA is an asset of the company and a liability of the director (effectively — the director owes the company money). TAX CONSEQUENCES OF AN OVERDRAWN DLA: (a) SECTION 455 CTA 2010 CHARGE: at the company's accounting year end, if the DLA is overdrawn (and has not been repaid or waived), the company must pay a corporation tax charge of 33.75% of the overdrawn balance. The s.455 charge is paid alongside the company's corporation tax — due 9 months and 1 day after the accounting reference date (the CT600 due date). The s.455 rate (33.75% from April 2022) matches the upper rate of income tax on dividends — this deliberate alignment prevents directors from using overdrawn DLAs as a tax-free alternative to dividends. Example: property SPV year end 31 March 2026; DLA overdrawn by £20,000 at 31 March 2026; not cleared by 1 January 2027 (9 months + 1 day); s.455 charge = £20,000 × 33.75% = £6,750 — payable to HMRC alongside CT. (b) BENEFIT IN KIND (BIK): if the overdrawn DLA exceeds £10,000 at any point during the tax year (6 April to 5 April), a benefit in kind arises on the director under the beneficial loan provisions (ITEPA 2003 ss.173-183). The BIK charge: calculated at HMRC's official rate of interest on the average overdrawn balance during the year (official rate 2025/26: 3.25%; adjusted annually by HMRC); the BIK is reported on form P11D (due 6 July after the tax year end); the director pays income tax on the BIK value at their marginal rate via self-assessment; the company pays Class 1A National Insurance Contributions at 13.8% on the BIK value; if the director pays interest to the company on the overdrawn DLA at or above the official rate, the BIK is eliminated. 9-MONTH AND 1-DAY RULE: if the overdrawn DLA is cleared (repaid or a dividend formally declared to offset it) within 9 months and 1 day of the accounting year end, no s.455 charge arises. The 9-month rule gives directors a window to clear an overdrawn DLA before the CT600 due date. Clearing the DLA: (i) repaying cash to the company bank account; (ii) formally declaring a dividend equal to or greater than the overdrawn balance (the dividend must be properly declared — board minutes; sufficient distributable reserves). 30-DAY BED AND BREAKFAST ANTI-AVOIDANCE RULE (CTA 2010 s.464A): HMRC introduced the 'bed and breakfast' anti-avoidance rule to prevent directors repaying the overdrawn DLA just before the 9-month deadline and then immediately re-borrowing from the company. Under s.464A: if the director repays £5,000 or more to the company within 30 days of the s.455 becoming due, and then re-draws at least the same amount back within 30 days, the repayment is ignored for s.455 purposes — the charge still applies. SECTION 458 CTA 2010 — RECLAIMING THE S.455 CHARGE: the s.455 charge is NOT a permanent tax cost — it is a temporary charge that is repaid by HMRC when the overdrawn DLA is subsequently repaid. When the director repays the overdrawn DLA (or a dividend is declared to clear it), the company can claim repayment of the s.455 charge under s.458 CTA 2010. The s.458 repayment is made 9 months and 1 day after the end of the accounting period in which the DLA is cleared (not immediately — there is a delay). The claim must be made within 4 years of the accounting period in which the repayment or offset occurs. HMRC pays interest on the repaid s.455 charge. Writing off the DLA: if the company formally writes off the overdrawn DLA (waives the director's debt), the write-off is treated as additional income for the director — taxable as employment income via PAYE (not as a dividend) — and is also a distribution for company law purposes (requiring distributable reserves). Writing off is generally not the recommended approach because the income tax cost typically exceeds the s.455 charge that would otherwise arise

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