UK resident borrowing money from a SEY company

[no1d]

Hi,

My cousin, UK resident of RO nationality, plan to set up a loan agreement of 300k between him and and my SEY company.

The purpose of this loan is to have him invest in a real estate company in RO so the money won't be used in UK. But we need his local bank account.

Could you please advise the steps we should take to make this work properly?

Thanks everyone.

 

[newNomad]

Can someone explain how this model works in general?
Moreover can one borrow money continiously from own company such that always there is no social contributions and no other taxation triggered except for eventually the corporate profit tax on the income of the company itself?
I.e. if no-dom no-USA citizen has a Delaware company which is 0% pass through and then borrow himself with a loan agreement from this entity the money which comes in the high tax EU country should be tax-free no?

 

[Martin Everson]

My cousin, UK resident of RO nationality, plan to set up a loan agreement of 300k between him and and my SEY company.

Is he a UK non-dom? Makes a difference if he is not tax wise.

If he is a UK non-dom just draft an agreement between him and your SEY company and pay to him loan in an account outside UK. Then he can move funds into RO project.

If however he is not a UK non-dom then be careful. HMRC could see the loan as disguised remuneration in worst case if the loan is not done on commercial terms and conditions. I would personally speak to a UK tax advisor.

 

[no1d]

Is he a UK non-dom? Makes a difference if he is not tax wise.

My cousin lives and works in UK for around 5 years so I think he is not UK non-dom, but how we can check?

I want to use his account in the UK so the investment into project looks clean in the eyes of RO tax agency.

You're right, offshore loans are tricky and HMRC might see the loan as attribution of income which we really want to avoid.

There are too many UK tax advisors, any idea where to look for a good one, Turner Little maybe?

 

[newNomad]

If however he is not a UK non-dom then be careful. HMRC could see the loan as disguised remuneration in worst case if the loan is not done on commercial terms and conditions. I would personally speak to a UK tax advisor.

If he is a cousing, can be drafted even with 10% interest p.a. doesn't matter since in the end the borrower will default and the company will be "handling the bag"
Can't go tits up?

 

[no1d]

Yes, he will not pay back this loan.

 

[newNomad]

So appears to be a viable scheme, if a proper loan agreement is drafted under 'commercial' terms and no other link can be proven with the loan beneficiary

 

[Martin Everson]

My cousin lives and works in UK for around 5 years so I think he is not UK non-dom, but how we can check?

He can claim non-dom status. You elect to be treated as a non-dom each year and pay tax on the remittance basis as he is not domiciled in UK. This election is done around tax time. So if loan was done offshore now then next year for tax filing year ending April 2021 he would claim this non-dom status.

Speak to these guys maybe for tax advice:

https://www.taxadvisorypartnership.com/advisory-services/tax-advice-non-uk-domicile/

I want to use his account in the UK so the investment into project looks clean in the eyes of RO tax agency.

Ok non-dom status won't work if money is remitted into UK but it's not like he cannot open an account abroad.

There are too many UK tax advisors, any idea where to look for a good one, Turner Little maybe?

You can speak to Turner little but maybe worthwhile spending some money and speaking to a tax advisor in UK like one above for example.

If he is a cousing, can be drafted even with 10% interest p.a. doesn't matter since in the end the borrower will default and the company will be "handling the bag"
Can't go tits up?

If he can get non-dom status then anything he does outside UK (and does not bring into UK) is beyond HMRC's tax remit anyway.

 

[no1d]

Ok non-dom status won't work if money is remitted into UK but it's not like he cannot open an account abroad.

The plan was to have him receive the loan in a UK bank so that there's no connection between me/my SEY company and RO. This way the investment in RO company comes clean.

I don't want to complicate things for him as he has a stable job, wife, kid, etc but I won't waste your suggestion and I will speak with that firm, thanks.

Maybe he can open a bank account in Ireland?

 

[Martin Everson]

Maybe he can open a bank account in Ireland?

If he gets non-dom status even for current year and reverts back the following tax year he can just open an account anywhere outside UK.

Even if you forget about non-dom status and he gets money in UK from SEY company then his problems will start not just with compliance at bank but with HMRC down the line. HMRC is really going after people with hidden income disguised as sham loans - not to say yours is .

 

[no1d]

Got it, we are looking into opening a bank account in Ireland.