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Need a loan? Think before you sign…

We know how difficult cash flow is right now and the tough choices and decisions being faced by the farming community.  So if you have been reading the Farmers Guardian or other publications, you may have noticed adverts for “tax free loans, borrow from £10,000 to £1,000,000” which do seem very attractive.

However, it is worth noting that the sales pitch used skims over a few key elements that may have a negative impact from a tax perspective.

“100% tax free repayments” – this means this is a lease transaction involving the asset upon which the loan is secured and is therefore not actually a loan

“VAT reclaimable” – again highlighting that the ‘loan repayment’ you make is a lease payment to lease the asset which you have effectively sold to the loan company

“low APR” – the actual repayments are calculated on your credit history and therefore will differ, but they are not ‘low’. They take into account the tax relief you are effectively getting on your repayments. Without knowing your individual tax position no one can possibly quote this.

One very important issue here is that the asset used as security is actually treated as ‘sold’ to the loan company, therefore if all the tax relief has been claimed on it previously; you will have tax to repay! This is something the loan company won’t tell you!

In summary it is always important to discuss potential funding with us before you sign the documents to get the full picture and proper advice.

If you would like any more information on this or any other matters, then please do not hesitate to contact our Agricultural Team on 01228 711888.

Posted: October 19th, 2012

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