Director Loan in a Property Company: Tax Rules and Implications

When you run a buy-to-let portfolio through a limited company, the line between you and the company gets crossed constantly. You fund the first deposit personally, the company pays a refurb invoice on a card you happened to be holding, the rent lands, a dividend gets declared but not drawn. Every one of those movements lands in your director loan account, and where the balance sits at the company year-end drives a string of tax consequences that catch a lot of landlords out.

This guide is the plain-English overview: what a director loan in a property company actually is, the two directions the balance can run, and the tax that attaches to each. For the full technical detail (the section 455 timeline, the L2P refund mechanism, the bed-and-breakfast anti-avoidance architecture and a worked extraction example), see our companion director loan account mechanics guide. If you are still weighing up whether to incorporate at all, start with our property company structure guide.

What is a director loan account?

A director loan account, or DLA, is the running tally of money flowing between you personally and your property company in either direction. It is not a separate bank account or a product you apply for. It is a ledger in the company books that answers one question at any moment: does the company owe you, or do you owe the company?

In a property company the balance moves more than in most businesses because so many transactions have one foot in personal life and one foot in the company. The common entries:

• Cash you transfer in to fund a deposit, refurbishment, survey or legal fees on a purchase.
• Costs you pay personally during a purchase before the company is set up to settle directly with suppliers.
• Company payments for personal items: the subscription on the company card, the personal bill paid by direct debit from the company account.
• Dividends formally declared but left undrawn, which sit as a credit the company owes you.
• Drawings taken before profits are formally distributed.
• A personal guarantee on a company mortgage that is later called and settled from your own funds.

The direction of the balance is what matters for tax. A credit balance, where the company owes you, is benign and useful. An overdrawn balance, where you owe the company, is where the charges live.

Credit versus overdrawn: the two directions at a glance

Almost every question a landlord director has about a director loan comes down to which way the balance is running. The table below sets the two directions side by side.

Feature	Credit balance (company owes you)	Overdrawn balance (you owe the company)
How it arises	You fund deposits, costs or working capital, or leave declared dividends undrawn	You draw cash before profits are distributed, or the company pays personal costs
Tax on the movement	Repayments to you are a return of capital: no income tax, dividend tax or NIC	Section 455 corporation tax if not repaid within nine months and one day of year-end
Section 455 rate	Not applicable	33.75% before 6 April 2026; 35.75% for loans made on or after 6 April 2026
Benefit-in-kind	None (company may pay you interest, taxable as your savings income)	Arises once the balance exceeds £10,000 and interest is below the HMRC official rate
Mortgage and refinance view	Neutral to positive; signals capital commitment to specialist lenders	Treated as personal debt against company assets; reduces borrowing headroom
What to do with it	Draw it down at a pace the company can afford, tax-free, before touching dividends	Clear it inside the nine-month window, or charge official-rate interest to stop the BIK

When the company owes you: the credit director loan

A credit director loan is the friendly side of the ledger, and it is the side most new property company directors sit on for the first few years. You put cash into the company to get it moving, so the company owes you that money back.

The two ways a credit balance builds:

Pre-incorporation and early funding. Most new property companies need the director to put in money before any rent comes through: the first deposit, the mortgage arrangement fee, legal costs and a working-capital float. Every pound you transfer to the company current account from your personal account is a credit entry. By the time the first property completes, a credit balance running into the tens or low hundreds of thousands is common.

Declared but undrawn dividends. Once the company has distributable profits, the board can declare a dividend that you choose not to take in cash. The dividend has been distributed for tax purposes, so you have a personal income tax obligation on it in the year of declaration, but the cash stays in the company and sits as a credit you can draw later. This only works with proper board minutes, dividend vouchers and a written distributable-reserves check; declared in arrears to fix an overdrawn balance, the dividend is routinely challenged.

The payoff is that repayments of a credit balance reach you free of any further tax. The company has already paid corporation tax on the profits behind that cash, and returning your own money to you is not a distribution. This lets a director draw a meaningful income in the early post-incorporation years without a second income tax layer. One caution worth keeping in view: incorporation relief under section 162 does not hand you a clean credit balance for free. Section 162 relieves the gain only in proportion to the share consideration, so taking part of the consideration as a director loan rather than shares crystallises capital gains tax at the residential rates of 18% or 24% on the carved-out proportion. Our guide to CGT on transferring property to a company works through that interaction.

When you owe the company: the overdrawn director loan and section 455

The position flips when you take more out of the company than you have put in or formally distributed. An overdrawn balance, where you owe the company, is treated as a loan to a participator under section 455 of the Corporation Tax Act 2010.

If the balance is still outstanding nine months and one day after the company year-end, the company must pay corporation tax on the outstanding amount. The rate is not a fixed figure written into section 455. It tracks the dividend upper rate set by ITA 2007 s.8(2) for the tax year the loan is made: 33.75% for loans made before 6 April 2026, and 35.75% for loans made on or after 6 April 2026, following the FA 2026 s.4(1)(b) substitution of the dividend upper rate. The logic is that an overdrawn balance is effectively an undeclared distribution, so HMRC charges the company a notional dividend tax on it.

There is no de minimis. A £2,000 overdrawn balance that sits past the deadline attracts a section 455 charge just as a £100,000 one does. The charge is reported on the CT600A supplementary pages of the corporation tax return, and it is on top of the corporation tax already due on the year's profits.

Worked example. A property company has a year-end of 31 March 2027. At that date the director's loan is overdrawn by £40,000, made up of mixed personal drawings across the year. The repayment deadline is 1 January 2028. If the £40,000 is not repaid by then, the company pays £14,300 (£40,000 at the 35.75% rate that applies to loans made on or after 6 April 2026) as section 455 corporation tax. The cash leaves the company and does not start coming back until the loan is repaid, with the refund itself lagging a further nine months and one day. The mechanics of the refund, claimed on form L2P, are set out in full in our mechanics guide.

The charge is fully refundable, so it is best understood as a working-capital cost rather than a permanent tax. But the refund timing means money is locked up for two to three years on a typical overdrawn-then-cleared cycle, which is real money on a portfolio company carrying property finance.

The £10,000 benefit-in-kind rule

Section 455 is a charge on the company. There is a separate charge that lands on you personally: the beneficial loan benefit-in-kind in ITEPA 2003. This is the rule with the £10,000 threshold that gets conflated with section 455 so often.

The mechanics are independent of section 455. Where your combined loans from the company stay below £10,000 throughout the whole tax year, no benefit arises and there is nothing to report. Once the balance goes above £10,000 and the company charges you interest at less than the HMRC official rate (including charging nothing at all), the shortfall between the official-rate interest and what you actually pay is a taxable benefit. It is reported on form P11D, you pay income tax on it at your marginal rate, and the company pays Class 1A national insurance.

The HMRC official rate of interest is reviewed periodically and is currently 3.75% for 2025/26 and 2026/27. Older guides still quote a 2.25% figure, which is out of date. Always check the current rate on the gov.uk beneficial loan arrangements page for the year you are calculating, because it has been revised more than once in recent years.

Worked example. Your director loan is overdrawn by £30,000 across the whole tax year and the company charges no interest. At the 3.75% official rate, the taxable benefit is £30,000 at 3.75%, which is £1,125. As a higher-rate taxpayer you pay £450 of income tax on it, and the company pays Class 1A national insurance on the £1,125. Modest in cash terms, but it is an annual leak and a P11D filing obligation for every year the balance sits above £10,000, and it sits on top of any section 455 charge if the balance also runs past the year-end deadline.

Two ways to remove the benefit: keep the average balance at or below £10,000 across the year, or charge yourself interest at no less than the official rate and actually pay it. The interest-charged route brings its own admin, because interest paid by the company to a director triggers the CT61 quarterly return regime to account for basic-rate tax deducted at source.

Borrowing from the company to buy property personally

A question that comes up often: can I borrow from my property company to buy a property in my own name? Mechanically yes, but it is one of the least efficient things you can do with a property company.

A loan from the company to you is an overdrawn director loan. Because property is a large, slow-moving asset, the balance sits overdrawn for years rather than weeks, so it almost certainly runs past a year-end and into the section 455 charge, and the balance is far above £10,000 so the benefit-in-kind bites every year as well. You end up paying a notional dividend tax on the company side and an annual benefit charge on the personal side, for money you have not actually been distributed.

If the real aim is to hold a property personally, the cleaner route is to extract the funds properly first, as a dividend or salary, accept the income tax on the extraction, and then buy in your own name with money that is unambiguously yours. The interaction between personal and company funding when you expand a portfolio is exactly the kind of decision worth modelling before you commit, not after. Our guide to extracting profit from a property company compares the routes.

Compliance and reporting for landlord directors

The director loan balance feeds several reporting obligations, and a property company gets more HMRC attention here than a trading company because the rental cash flow makes informal drawings easy.

• Statutory accounts. Advances and credits between the company and its directors are a separate disclosure note under FRS 102 and the Companies Act 2006. The note is read by HMRC, lenders and any future buyer of the company.
• Corporation tax return. An overdrawn balance unpaid past the nine-month-and-one-day deadline is reported and the section 455 charge paid on the CT600A pages.
• P11D. Where the benefit-in-kind arises (balance over £10,000, interest below the official rate), it is reported on the director's P11D and the company accounts for Class 1A national insurance.
• CT61. Where the company pays interest to the director on a credit balance, it must file quarterly CT61 returns to account for the basic-rate tax deducted at source. This is the obligation most directors overlook.

None of this is onerous if the balance is reconciled monthly and documented as it goes. It becomes painful only when twelve months of mixed-purpose card use is untangled at year-end and surfaces a balance nobody expected. For the wider corporation tax picture a property company sits inside, see our guide to corporation tax for property companies.

Common mistakes and how to avoid them

The same handful of errors account for most of the unexpected director loan bills we see on property company portfolios.

• Mixing personal and company spending. Using the company card or account for personal items, intending to repay, then forgetting. The accumulation only surfaces at year-end and then has to be cleared inside the section 455 window. Discipline at the point of spend, not at year-end, is the only real fix.
• Routing refinances through your personal account. When a company-held property is remortgaged and the equity release lands in your personal account before being moved on, the cash sits overdrawn on the loan until transferred back. Across a year-end, that is an avoidable section 455 charge on the company's own money. Always route refinance proceeds to the company account first.
• Declaring dividends without reserves. Declaring a dividend to clear an overdrawn balance when distributable reserves do not cover it makes the excess an unlawful distribution under the Companies Act, ineffective to clear the loan. A written, dated reserves check before the declaration is the fix.
• Writing the loan off to escape section 455. A formal write-off does make the section 455 charge refundable, but the write-off is itself taxed as a distribution in your hands at the dividend rates, so it usually costs as much as the charge it relieves. Settling the loan from properly declared dividends is almost always better.
• Assuming small amounts do not matter. There is no de minimis for section 455 and the £10,000 BIK threshold is on the average balance through the year, so brief or small excursions still need watching.

When to get advice

A director loan is straightforward to run well and expensive to run badly. It is worth getting advice where the balance regularly drifts overdrawn near a year-end, where you are planning a significant portfolio expansion that will move large sums between you and the company, where you are thinking about borrowing from the company to fund a personal purchase, or where you are approaching a refinance and want the balance shaped to support the borrowing rather than hinder it.

The cleanest outcomes come from planning the shape of the account before the transactions happen, not reconstructing it afterwards. If you want the full technical detail behind this overview, our director loan account mechanics guide works through the section 455 timeline, the L2P refund, the bed-and-breakfast trap and a worked extraction example. For how the director loan sits alongside dividends and pension contributions in a full extraction plan, see our guide to property company dividend tax.