Director's Loan Account in a Property Company: Mechanics, Section 455 and the £10,000 BIK Rule

A director's loan account is the moving running tally of every pound that flows between you personally and your property company in either direction. It is the most-used and most-misunderstood part of a small UK property company's balance sheet, because the cash flows are constant: you put deposit money in, the company pays a refurb invoice on a card you used by accident, the rent collects, a dividend gets declared but not yet paid, you take a draw against undeclared profits to cover a personal bill. Each movement lands in the DLA, and where the balance sits at year-end (and during the year) drives a string of separate tax consequences.

This page works through the mechanics on both sides of the ledger. It covers the credit balance you build when you fund the business personally, the section 455 corporation tax charge that hits a year-end overdrawn balance, the 9-month-and-one-day repayment clock, the bed-and-breakfasting anti-avoidance trap, the £10,000 beneficial loan benefit-in-kind rule, and a worked example of a £200,000 credit DLA being drawn down at £30,000 a year. For the higher-level introduction to director loans in property companies, see our director loan property company tax rules guide. For the pillar on company structure choice, see our 2026 property company structure guide.

What the DLA actually tracks

Strip out the accounting, and a director's loan account is the answer to one question at any given moment: does the company owe you money, or do you owe the company? The technical name in the statutory accounts is "amounts owed by directors" (a debit balance, you owe the company) or "amounts owed to directors" (a credit balance, the company owes you). In a property company, the balance moves constantly because so many transactions have one foot in personal life and one foot in the business.

Typical movements that land in the DLA:

• Cash you transfer to the company to fund a deposit, refurb, professional fees on a purchase, or capital expenditure on an existing property.
• Mortgage arrangement fees and survey costs you pay personally during a purchase before the company is set up to settle directly with suppliers.
• Company payments for personal items (the holiday booked on the company card by mistake, the personal phone bill paid by direct debit out of the company current account).
• Dividends formally declared but not yet paid: legally distributed once declared, so they sit as a credit owed to you.
• Salary accrued but not paid (an unusual choice for a property company because of the PAYE consequences, but it happens).
• Repayment of personal cash you put in earlier, taken in monthly or lumpy tranches.
• Interest charged by the director to the company, or by the company to the director.

The reason property companies hit DLA issues more often than trading companies is rhythm. Trading companies see daily revenue and pay monthly salaries, so the balance is more stable. A property company has lumpy cash events: a deposit going in, a refurb invoice cleared, a refinance pulling cash out, a rent quarter landing. Between those events the personal-versus-company line gets crossed casually, and the DLA absorbs the slack. Without discipline, the year-end balance is a surprise.

The credit DLA at incorporation and how it accumulates

A credit DLA usually starts at incorporation and grows in the early years. The two main ways it builds:

Pre-incorporation funding. Most new property companies need the director to put in cash before any rent comes through. The first deposit, the mortgage arrangement fee, legal costs, and the working capital float for the first few months are all personally funded. Every pound transferred to the company current account from your personal account is a credit DLA entry. By the time the first property completes, a credit balance of £50,000 to £150,000 is common.

Reinvested earnings via declared but unpaid dividends. Once the company has profits, the board can declare a dividend that the director chooses not to draw in cash. Legally the dividend has been distributed, the director has a personal income tax obligation on it in the year of declaration, but the cash stays in the company. The unpaid dividend sits as a credit DLA. This route lets a director crystallise dividend income in a low-personal-tax year (covering it with the personal allowance plus dividend allowance plus basic-rate dividend band, for example) and then draw the cash later in a higher-income year without a fresh tax event. The arithmetic only works if the dividend is genuinely declared with proper board minutes, dividend vouchers, and a written distributable-reserves check; declared in arrears to fix an already-overdrawn DLA, HMRC routinely challenges the dividend's validity.

What does not build a clean credit DLA is the act of incorporation itself under section 162 incorporation relief. Section 162 only relieves the gain in proportion to the share consideration. If you take part of the consideration as a credit DLA rather than as shares, the gain attributable to that proportion crystallises and is taxable at the residential CGT rates of 18% or 24% that have applied since 30 October 2024. On a typical incorporation of a £1.2m portfolio with a £600,000 gain and a £200,000 DLA carve-out, the immediate CGT cost on the carve-out portion is around £24,000 to £32,000. For more detail see our CGT on property transfer to a limited company guide.

Worked example: £200,000 credit DLA, £30,000 a year extraction

Take Karen, a higher-rate-taxpayer landlord who has incorporated a small portfolio and built a credit DLA of £200,000 through pre-incorporation cash funding and a couple of years of declared-but-undrawn dividends. The company now generates around £60,000 of post-corporation-tax profit a year. Karen wants to draw £30,000 a year for personal use without triggering a fresh personal tax event each year.

Year one: Karen instructs the company to repay £30,000 of the credit DLA. The payment is recorded as a debit to the DLA (reducing the company's liability to her from £200,000 to £170,000) and a credit to the company's bank account (reducing cash by £30,000). In Karen's hands, the £30,000 is not income. It is repayment of a debt she was owed. No income tax, no dividend tax, no national insurance. Her personal tax return for the year shows no movement from this transaction.

The company's retained profit for the year (£60,000) sits on the balance sheet as reserves available for future dividends. The £30,000 of cash that left as DLA repayment came out of the company's working capital, not its current-year profit.

Karen repeats this for years two through six. By the end of year six the credit DLA has been fully drawn back to zero. Across the six years, £180,000 of net cash has reached Karen personally without a personal income tax layer beyond the corporation tax already paid by the company. Compared to drawing £30,000 a year as dividends out of post-CT profits (taxable at 33.75% in the higher-rate dividend band, after the first £500 dividend allowance), the saving over the six years is broadly in the order of £50,000 to £60,000 of personal income tax, depending on her other income each year.

Two important guardrails. First, the company must actually be able to afford the repayments without going overdrawn on the DLA. If profits drop or capital expenditure spikes, the company should defer the repayment, not press through. Second, repaying a credit DLA does not absorb retained profits. Those still accumulate and at some point need their own extraction strategy (dividends, pension contributions, a sale of the company). The DLA repayment is an extraction technique, not a substitute for a wider extraction plan.

Going overdrawn: section 455 corporation tax

The position flips when the DLA goes the other way. A debit balance, where the director owes the company, is treated as a loan to a participator under section 455 of the Corporation Tax Act 2010. Where the loan is outstanding nine months and one day after the end of the company's accounting period, the company must pay corporation tax of 33.75% of the outstanding amount.

The 33.75% rate matches the upper-rate dividend tax rate. The policy logic is that an overdrawn DLA is functionally an undeclared distribution: the director has taken cash out of the company without paying dividend tax on it, so HMRC charges the company a notional dividend tax on the company's behalf. The rate rose from 32.5% to 33.75% from 6 April 2022 alongside the headline dividend tax increase, and has held at 33.75% since.

There is no de minimis. A £2,000 overdrawn balance attracts a £675 section 455 charge if it sits past the deadline. The charge is reported on the CT600A supplementary pages of the corporation tax return.

Worked illustration. The company's accounting period ends 31 March 2026. At year-end the director's DLA is overdrawn by £40,000. The repayment deadline is 1 January 2027 (nine months and one day after year-end). If the director has not repaid the £40,000 by that date, the company must pay £13,500 (£40,000 × 33.75%) as section 455 corporation tax. This is on top of the corporation tax already due on the year's trading profits.

Reclaiming section 455 once the loan is cleared

The section 455 charge is refundable, but the refund mechanism has a built-in lag. The company can reclaim once the loan has been repaid, formally written off, or released. The refund is claimed on form L2P, either online or as an attachment to the CT600.

The cash refund cannot be claimed until nine months and one day after the end of the accounting period in which the repayment happened. A director who clears the loan part-way through the company's year ending 31 March 2027 has to wait until 1 January 2028 to claim the refund. In practice the refund lands a few weeks to a few months after the claim, so a director who triggers a section 455 charge in year one and clears the loan in year two is typically waiting until year four for the cash to come back.

The working-capital cost is real. On a £40,000 loan that sat overdrawn for one period and was then cleared, the £13,500 section 455 cash leaves the company for around two to three years before returning. At commercial property finance rates of 5% to 7%, the implicit cost runs to a couple of thousand pounds in foregone yield. Treat section 455 as a working-capital event, not an interest-free option.

The 30-day rule and bed-and-breakfasting

The traditional way around the nine-month clock was a quick clear-and-redraw. The director would deposit personal cash before the year-end deadline to clear the balance to zero, file the CT600A showing no section 455 charge, and then re-borrow shortly afterwards. Section 464C of the Corporation Tax Act 2010 blocks this. There are two limbs.

The 30-day rule: where the director repays £5,000 or more from the DLA and within 30 days takes a new loan of £5,000 or more from the company, the repayment is treated as not having happened for section 455 purposes. The balance is taxed as if the repayment was never made.

The arrangement-or-intention rule: where there are arrangements or an intention to redraw the funds at the time of repayment, even outside the 30-day window, the repayment is again disregarded. There is no time limit on this limb. HMRC reads bank statements, board minutes and director correspondence when it suspects this pattern, and it can be inferred from behaviour alone where the repay-and-redraw cycle repeats year on year.

Three practical points. Genuine permanent repayments funded from dividends, salary, pension extractions or external personal income do not fall foul of either limb because the source of the repayment is independent of the company. Repayments funded from a fresh loan from the company by a connected party (a spouse, an associated company) are caught by the wider participator definitions. Where a director needs to clear a balance and then needs cash again later, the cleanest answer is usually to declare and pay a dividend that the director then loans back to the company if the cash is needed inside the company; the dividend route crystallises the personal income tax but resets the DLA story cleanly.

The £10,000 beneficial loan benefit-in-kind

Section 455 sits on the company side of the ledger. There is a separate charge on the director's personal side: the beneficial loan benefit-in-kind in chapter 7 of part 3 of ITEPA 2003. This is the rule with the famous £10,000 threshold.

The mechanics. Where the total of loans from the employer (the company) to the director exceeds £10,000 on average across the tax year, interest at less than the HMRC official rate of interest is treated as a taxable benefit. The taxable amount is the difference between the official-rate interest the company should have charged and the interest actually paid by the director. The benefit is reported on form P11D and the director pays income tax at marginal rate; the company pays Class 1A national insurance at the prevailing rate.

The official rate of interest is set in the Taxes (Interest Rate) Regulations 1989 and is reviewed by HMRC. The rate has historically lagged commercial rates significantly, which is why the BIK regime exists in the first place. The current published figure is in the HMRC Employment Income Manual at EIM26100. Check the figure for the year you are calculating because it has been revised more than once in recent years.

Worked example. Director's DLA is overdrawn by £30,000 across the whole tax year. The company charges no interest. At an official rate of 2.25%, the taxable benefit is £30,000 × 2.25% = £675. As a higher-rate taxpayer, the director's personal income tax on the benefit is £675 × 40% = £270. The company pays Class 1A national insurance on the £675 at the prevailing rate (around £100 at current Class 1A rates). The combined personal-plus-company cost is modest in absolute terms, but it is a real annual leak and a P11D filing obligation for every year the balance sits above £10,000.

Two routes to avoid the benefit. Keep the average overdrawn balance at or below £10,000 across the tax year (the £10,000 ceiling is on the average, so brief excursions above it can be averaged out). Or charge interest at no less than the official rate, actually paid by the director (not merely accrued). The interest-charged route triggers a CT61 quarterly return obligation on the company because interest paid by a company to an individual is subject to deduction of basic-rate income tax at source; missing the CT61 obligation is itself a common error.

Five DLA failure modes we see most often

Across the property company portfolios we work with, the same five DLA failures account for most of the unexpected year-end tax bills.

Mixed-use cards going unreconciled. A director uses a company card for the weekly shop or a personal subscription, intending to repay it, then forgets. Across a year the personal-spend accumulation runs into the low thousands and is only spotted at year-end when the bookkeeper reconciles the card statement. The accumulated balance then needs to be cleared inside the nine-month-and-one-day window or attracts section 455. Discipline at the point of spend, not at year-end, is the only fix.

Mortgage refinances routed through the personal account. When a BTL property held in the company is remortgaged and the equity release proceeds land in the director's personal account before being moved on (common where the mortgage broker has set up the transaction through personal banking for convenience), the cash sits overdrawn on the DLA until it is transferred back. Where the transfer is delayed across a year-end, the company sees an unexpected section 455 charge despite the cash being demonstrably the company's. The fix is mechanical: refinance proceeds always go to the company current account first.

Dividends declared without distributable reserves. A director declares a £40,000 dividend to clear an overdrawn DLA, but the company's distributable reserves at the declaration date are only £15,000. Under section 830 of the Companies Act 2006 the £25,000 excess is an unlawful distribution and is not effective to clear the DLA. HMRC reads the year-end accounts, sees the dividend as a partial reversal, and reinstates the DLA balance for section 455 purposes. The fix is a written reserves check before the declaration, signed and dated, with the calculation attached to the board minute.

Personal guarantees confused with director loans. A director signs a personal guarantee on a company mortgage. The guarantee is not cash and does not move the DLA. But where the guarantee is later called and the director pays the lender directly, the payment is a credit DLA (the director has settled a company debt from personal funds). Where the guarantee is released or transferred without a payment, nothing moves. The two are routinely confused in the company's books, with directors believing they have a credit DLA they do not actually have.

Writing the loan off as a tax fix. A director under pressure on section 455 writes off the loan to make the section 455 charge refundable. The write-off is reported on the company's accounts and the section 455 cash starts moving back. But the write-off is a distribution in the director's hands and is taxable at the dividend rates (8.75%, 33.75% or 39.35% depending on band). On a £40,000 overdrawn balance for a higher-rate-taxpayer director, the personal tax on the write-off is £40,000 × 33.75% = £13,500, identical to the section 455 charge being refunded. Net of the personal tax cost and the time value of money, the write-off route is almost always worse than just settling the loan.

Documentation: what the DLA paperwork should look like

The DLA balance is real whether or not it is documented, but documentation is what protects you under HMRC enquiry, on a sale or restructure, and in an insolvency. The minimum paperwork:

• A written loan agreement between the director and the company where the balance is material in either direction. Principal, interest rate (if any), repayment terms, security position. A page or two is enough.
• Board minutes recording the loan terms at the point the balance becomes material, signed by the directors.
• Monthly or quarterly DLA reconciliations agreed back to the bank statements, with every movement explained and categorised.
• For declared dividends sitting unpaid as a credit DLA: board minute, dividend voucher, written distributable-reserves check.
• For interest charged in either direction: an interest schedule, CT61 returns where the company pays interest to the director, and inclusion of the interest received on the director's self-assessment return as savings income.

At year-end the DLA reconciliation feeds directly into the statutory accounts disclosure (a separate disclosure note under FRS 102 and the Companies Act 2006 for advances and credits between the company and its directors). The disclosure is read by HMRC, lenders and any future buyer of the company. Sloppy DLA paperwork is the single most-common reason for a corporation tax enquiry escalation on small property companies. Tight paperwork is cheap insurance.

Where the DLA sits in your wider extraction plan

The DLA is one of four levers a property company director has for getting cash from the business to themselves. The others are salary (rarely optimal in a property company because there is no NIC-deductible trading income to set it against), dividends (the workhorse for ongoing extraction once reserves exist), and pension contributions (employer contributions paid directly by the company, deductible against corporation tax, no NIC, capped by the annual allowance). The DLA does not replace any of these, but it interacts with all of them.

A typical sequence we see work well: in the first three to five years after incorporation, draw down a credit DLA balance at a pace the company can comfortably afford, supplemented by modest dividends within the basic-rate band. Once the credit DLA is exhausted, shift to a mix of dividends and employer pension contributions sized against personal income tax bands and the pension annual allowance. Avoid overdrawn balances entirely after the credit DLA is gone; if cash flow demands an in-year drawdown beyond what dividends comfortably support, declare an interim dividend rather than running an overdrawn DLA across the year-end.

For a fuller picture of the surrounding structure, see our guide to setting up a UK property investment company and our family investment company analysis for cases where the share structure itself is the extraction lever.