The question can my company help me buy a home popped up recently. When you think of it your company pays for your home. Your net salary pays the monthly mortgage. But what about the initial purchase of your home? Yes, it can help with that too. I’ll introduce you to Alex Dublin and his company Nicapem Ltd.
- Alex
- The Problem
- Company Loan
- Fit out the home
- 4% BIK rate
- Company Law
- Summary
Alex
Alex Dublin is from Cork and is 50 years old. Divorced for 5 years now, he has 3 kids with his ex-wife. Alex has been saving to buy a home since his divorce and has €30,000. He has been renting since the divorce. Like the words of the Bruce Springsteen song, he’s been
blowin’ around from town to town lookin’ for a place to stand.
Alex’s company is Nicapem Ltd, and he runs Irish language schools through that. The company has €150,000 in the bank and it always needs €50,000 as working capital to run the business. His current rent is €1400 for a house in Douglas. The landlord is looking to increase the rent and mentioned that he was thinking of selling it. His goal is to buy a home in the next year. Fed up with renting, it’s becoming more difficult and expensive to get a place. He wants security for himself and his kids.
The Problem
The problem for Alex is that he doesn’t have enough money for a deposit. He found a lovely house in Glasheen for €350,000 that is turnkey. A great location and enough room for the kids when they are over. The banks wouldn’t give him a mortgage, but the local Credit Union came to the rescue. The snag is that the most they will give him is €270,000 given his age and circumstances. It would be a 16-year mortgage until he’s 66. So, he has €300,000 and is short €65,000. The extra €15,000 is for stamp duty, legal fees and furniture.
Family loans aren’t an option. Other family members come to him for a loan. He can’t borrow from anywhere else as that will impact his repayment capacity for the mortgage. He’s thinking. The money is in the company but if I take that I’ll pay a load of tax. What about a loan from his company?
Company Loan
Yes, he can take a loan from his company. And it’s not too expensive to do that. The company has about €100,000 in excess cash. Delighted to hear this but he’s thinking it can’t be that straightforward. There are implications for Alex and the company but are all doable.
BIK for Alex
There’s a benefit in kind [BIK] for Alex. But the rate is favourable as the money is for the purchase of a home for him. The BIK rate is 4%. He should transfer the full €65,000 to his solicitor to buy the home. And use his savings to pay the balance, legal fees, stamp duty, and for fit-out. Any part of the loan not used for buying the home, like furniture, would be at a higher interest rate of 13.5%.
He takes a loan in January 2025.
| Value of loan | €65,000 |
| Interest 4% | €2,600 |
| Monthly notional income | €216.67 |
| Monthly Tax liability 52% | €112.67 |
For 2025 Alex won’t make any repayments to the company as it will take him a few months to settle in. At the start of 2026, he will pay €1,000 a month back to the company. As a result, the BIK will reduce in 2026. By calculating the interest on a reducing balance basis, the BIK will be
| Value of loan [end Jan 26] | €64,000 |
| Interest 4% | €2,560 |
| Notional income that month | €213.33 |
| Tax liability January 26 52% | €110.93 |
Income Tax for the Company
There is an Income Tax cost for the company. The company year-end is the 31st of December. The loan is advanced to Alex in the year ended 31 December 2025. As a result, an Income Tax payment will form part of the Corporation Tax [CT] liability for 2025. That CT liability is payable by the 23rd of September 2026, at the latest. The income tax due is 25% which comes to €16,250.
But remember this isn’t dead money. It isn’t a liability but a payment on account. Once the loan is repaid the company can get a refund of the income tax. At the end of 2026, Alex will have repaid €12,000. In the 2026 CT return the company will apply for a refund of €3,000 of Income Tax. Assuming Alex sticks to his plan and pays back €1,000 a month the Income Tax will come back to the company as follows
| 2026 repay | €12,000 | €3,000 |
| 2027 repay | €12,000 | €3,000 |
| 2028 repay | €12,000 | €3,000 |
| 2029 repay | €12,000 | €3,000 |
| 2030 repay | €12,000 | €3,000 |
| 2031 repay | €5,000 | €1,250 |
| Total | €65,000 | €16,250 |
Fit Out the Home
Alex gets his home. But when he does the fit-out shopping to get the home to his standard, everything comes to €20,000. He could reduce his loan from the company by €10,000 and the company would pay for the fit-out. In this case, the company buys and owns the furniture, beds, and kitchen appliances. Alex would pay BIK of 5% for the free use of the assets provided by his company. That is BIK of €1,000 per annum.
| Value of assets | €20,000 |
| Interest rate 5% | €1,000 |
| Monthly notional income | €83.33 |
| Monthly tax liability 52% | €43.33 |
The benefit for Alex of doing it this way is that he
- Owes the company €55,000 and not €65,000
- Doesn’t take a personal borrowing for the extra €10,000 fit-out cost
- Lower BIK for him on the company loan and less Income Tax to pay Revenue.
4% BIK Rate
To get the 4% rate the loan must be for the individual to use to buy, repair, develop, or improve a house. To me this includes building your own home, buying a doer-upper, or extending or renovating your home. It’s not only available to the individual but also to
- A former or separated spouse or civil partner of the individual, or
- A dependent relative (where the individual provides the residence rent-free to the relative)
It can also be used to pay off another mortgage used for the above reasons. Say Alex had an old mortgage on his former family home of €80,000 that’s with one of the vulture funds. He’s paying interest on that at 6% per annum. He could use the company money to pay that off. That would boost his repayment capacity so the Credit Union could offer him more money.
Company Law
I know. Mention company law and you’ll fall asleep. I do too. But it’s important that you can do this under company law rules. This isn’t my area of expertise. In most cases, you can’t borrow from your company but there are two exceptions
- The value of the borrowing is less than 10% of the net assets of the company and
- Use of a Summary Approval Procedure [SAP]
If the value of the net assets of the company is €600,000 and Alex borrows €55,000 then that’s ok. But if he borrows €65,000, he breaks the 10% rule. In that case, he would opt for the SAP route.
Summary
This is a major win for Alex. His company can help him buy a home. He just needs to do things right. Make sure he pays the BIK and calculates it correctly. Plus, the company looks after the Income Tax on the loan. And don’t forget to get the Income Tax back when Alex starts repaying the loan. It’s important to document the loan and to ensure that company law rules are followed.
Given the increased cost of the fit out the company footing that bill reduces the loan for Alex. And the BIK is minimal at 5% of the asset cost.
Alex has found his lost treasure. His dream, a place to stand in this hard land.
Need help planning for you and your company. If so, start here
