Director Loan Accounts in Property Companies

A director's loan account (DLA) is the running record of money moving between a landlord and their property company that is not salary, dividends or expense reimbursement. Pay a personal bill from the company account, or lend the company money to complete on a purchase, and the balance moves. Left unmanaged, an overdrawn DLA can trigger a real tax charge on the company, and a taxable benefit on the director personally.

This guide explains how a DLA works in a property SPV, what happens if it stays overdrawn, and the practical habits that keep it clean. It builds on our limited company buy to let guide, which covers the broader case for and against incorporating.

How the account works

Every close company (broadly, one controlled by five or fewer participators, which covers almost every landlord SPV) keeps a running balance for each director-shareholder. The account can sit in two directions:

• In credit, if the director has put more into the company than they have taken out, for example by lending money towards a deposit or covering a shortfall on a refurbishment. The company owes the director, and the director can draw this back out later with no tax consequence, since it is simply repayment of a loan rather than income.
• Overdrawn, if the director has taken more out than they have put in or been formally paid through salary or dividends, for example by using the company card for a personal cost or drawing cash ahead of a dividend being declared. The director owes the company, and this is where the tax rules bite.

A property SPV's DLA typically starts in credit, since the director usually funds the deposit and set-up costs personally before the company owns anything. It can tip into overdrawn territory later, often through informal drawings taken ahead of a dividend that is only formally declared and documented months afterwards, or through personal costs mistakenly paid from the company account.

The section 455 charge

If the DLA is overdrawn at the company's year end and the balance is not repaid within nine months and one day of that year end, the company must pay tax on the outstanding amount under section 455 of the Corporation Tax Act 2010. The rate tracks the higher rate of dividend tax and is 35.75% for loans made on or after 6 April 2026, up from 33.75% for loans made between 6 April 2022 and 5 April 2026. It is paid by the company, not the director, and reported on the CT600A supplementary pages of the corporation tax return.

Worked example. A landlord's property company has a year end of 31 March 2027. During the year the director draws £20,000 ahead of a dividend that never gets formally declared, leaving the DLA overdrawn by £20,000 at year end. If the loan is still outstanding on 1 January 2028 (nine months and one day after the year end), the company owes section 455 tax of £20,000 x 35.75%, which is £7,150.

The good news is that section 455 tax is not a permanent cost. Once the loan is repaid, released or written off, the company can reclaim the tax, though the reclaim is only paid nine months and one day after the end of the accounting period in which the repayment happens, so the cash can sit with HMRC for some time. There is also an anti-avoidance rule that catches "bed and breakfasting," where a loan is repaid shortly before the deadline and a similar amount is then re-advanced soon after, which HMRC treats as though the original loan was never repaid.

Benefit in kind on cheap loans

Separately from section 455, if the DLA is overdrawn by more than £10,000 at any point in the tax year and the director does not pay interest at or above HMRC's official rate (3.75% for both 2025/26 and 2026/27), the difference is treated as a taxable benefit in kind. This is reported on a P11D and taxed on the director personally, with employer's National Insurance also due from the company. This charge can apply on top of section 455 exposure, not instead of it, so a large overdrawn balance can generate two separate tax costs rather than one.

Common mistakes

• Treating the company bank account as a personal one. Paying for groceries, holidays or unrelated bills from the company card is the single most common way a DLA becomes overdrawn without anyone noticing until year end.
• Drawing cash ahead of a dividend that never gets formally declared. A dividend only exists once it is properly minuted and the company has sufficient distributable reserves to support it, covered in more detail in our dividends from a property company guide. Cash drawn before that happens sits in the DLA as a loan, not income.
• Losing track of the nine-month deadline. Because the clock runs from the company's year end, not the calendar year, it is easy to miss if nobody is actively monitoring the balance against the accounting period.
• Repaying and re-borrowing around the deadline. As above, HMRC's bed and breakfasting rule specifically targets this pattern, so a short-term repayment funded by a fresh loan a few weeks later rarely avoids the charge.

Keeping the account clean

The practical fix is mostly about discipline rather than tax planning. Keep business and personal banking strictly separate, so nothing personal ever touches the company account. Formalise dividends and salary with proper board minutes and payslips as you go, rather than treating informal drawings as pre-approved income. Review the DLA balance against the nine-month deadline well before the company's year end, not after, so there is time to clear an overdrawn balance through a formal dividend if the company has the reserves to support one. If the balance cannot be cleared in time, discuss the section 455 exposure with your accountant before the accounting period closes, since it is far easier to plan for than to unwind afterwards.

If you regularly move money both ways, lending the company funds for a purchase and drawing some back out later, it is worth keeping a simple written record of each transfer with a date and a one-line description of what it was for, even though there is no strict legal requirement to document every entry. This makes it far easier for your accountant to reconcile the account at year end, and it removes any doubt about which direction the balance was moving at a given point if HMRC ever asks questions about a specific transaction.

Charging interest on a director's loan

Where a DLA is likely to stay overdrawn for a while and the balance is large enough that the benefit in kind charge would be material, some landlords choose to have the company charge interest on the loan at or above HMRC's official rate, which removes the benefit in kind entirely, since the charge only applies to loans that are interest-free or charged below that rate. The interest itself is taxable income to the company and a personal cost to the director, so this is not free of tax consequence, but it can be a cleaner outcome than an unplanned benefit in kind turning up on a P11D after the fact. This is worth discussing with your accountant as a deliberate choice rather than defaulting into it, since for a modest, short-lived overdrawn balance the benefit in kind charge may simply be smaller than the interest would be.

How PropMaps helps

PropMaps Studio is the modelling layer for this. Enter the property, the mortgage and the tax wrapper, then watch cashflow, cover and tax play out over years — instead of rebuilding a spreadsheet every quarter. Start with a free calculator or open the Studio.

Disclaimer

This guide is general information for UK landlords, not legal, tax or mortgage advice. Check GOV.UK, HMRC or a qualified adviser for your situation.