In addition to earnings from sports, professional athletes may have a range of different business interests. You and your team may have established companies to manage aspects like:

• Image rights
• Property investments
• Media work

Your ventures could also span diverse industries, from fashion to fintech. Regardless of the type, you likely understand the importance of investing funds to help these businesses thrive.

What you may not be aware of, however, is that you can borrow money from your businesses to use in your personal life. This is known as a “director’s loan” and can be a hugely effective and potentially tax-efficient way to manage your wealth.

 

Director’s loans allow you to lend to and borrow from your company

The term “director’s loan” simply refers to money either borrowed from or loaned to your business.

Whether you borrow from or lend to your business, you must keep track of all loans made by or paid to the company in a director’s loan account.

 

Loaning money to your company

Professional athletes can use director’s loans as a tool to build wealth and fund business investments. By lending personal funds to your business, you can support ventures like seed funding and property purchases, helping to grow the company’s assets over time.

These loans accumulate in a director’s loan account, from which you may be able to withdraw tax-free, provided you are repaying the original capital loaned to the business.

For instance, if your director’s loan account balance reaches £1 million, you might plan to draw £50,000 per year as a tax-free return of capital for a period of 20 years post career to supplement lifestyle. However, tax may apply if you withdraw funds beyond the initial loaned amount or if the business assets produce income which is often the case with property portfolio income. In these cases, corporation tax will be payable on rental income profit prior to distributions of capital. Income may be taxed as dividends or subject to other relevant tax rules.

This approach can be advantageous in retirement, allowing you to use your personal allowance and income tax bands on other income sources. However, it’s essential to structure this strategy carefully to stay within current tax regulations. Consulting a financial advisor can help you avoid unexpected tax liabilities and make the most of your director’s loan account.

 

Borrowing money from your company

On the other hand, you can borrow money from your company. You could use this function to pay for unexpected costs or to settle particularly large one-off bills.

This is money that is separate to:

• A salary, dividend, or expense repayment from your business
• Money that you previously paid into or loaned the company.

There may be Corporation Tax to pay, which you must aim to settle nine months and one day after your Corporation Tax accounting period ends. Otherwise, interest will be added until the tax or loan is repaid.

There is a specific Corporation Tax rate for loans to participators, standing at 33.75% in 2024/25. You can reclaim any Corporation Tax paid when you repay the director’s loan, but not any interest paid.

There is no legal limit for the size of the loan. However, the tax responsibilities will vary depending on two factors:

• Whether the loan was £10,000 or more.
• Whether you paid interest on the loan below the official rate of interest (ORI). In 2024/25, HMRC has set the ORI at 2.25%.

If the loan is less than £5,000, the business is responsible for the Corporation Tax bill and any interest applied, depending on when you repay it. There are typically no personal responsibilities to carry out unless you become unable to repay the loan.

For loans of £10,000 or more, there are some other aspects to consider. Firstly, your company must pay Class 1 National Insurance on the money it lends to you.

Furthermore, the company must usually treat the loan as a “benefit in kind” – that is, a financial or other benefit that you receive aside from salary. You might be familiar with these rules from a tax charge you might have faced on benefits your club has paid for you, such as agents’ fees.

Meanwhile, it is up to your company and you as the business owner as to whether you charge interest on this loan.

However, if you charge a lower rate than the ORI of 2.25%, the discounted interest you did not pay to the company will be further taxed as a benefit in kind.

 

5 ways athletes can benefit from using director’s loans

Below are just five examples of how making use of director’s loans can be beneficial for professional athletes.

 

• Funding investments in current and post-career ventures

As you are able to loan money to your businesses, it can be an effective way to use the wealth you earn from sport and start new ventures, ready for your post-sports career.

Meanwhile, you can also borrow money from your existing companies to fund personal goals or even invest in other, new opportunities.

 

• Building a property portfolio

You may well have invested in property, perhaps as a method of generating growth throughout your career, or for a regular income stream in later life. Whatever your reason, personally owning your properties is typically not as tax-efficient as doing so through a limited company.

For one, this gives you the opportunity to make director’s loans to fund property purchases. You could make regular payments into your director’s loan account to build a capital sum specifically for property investments.

Not only will this be classed as a capital injection, but you will also be able to extract it again tax-efficiently in future, making it ideal for tax planning and creating an efficient income strategy in later life.

As of 2024/25, the CGT rate on personally held second and investment properties for higher- and additional-rate taxpayers is usually 24%. This is liable to either increase or decrease.

As a result, you may want to consider crystallising gains now and then making a director’s loan to your limited property company to make this wealth more tax-efficient longer term. This however involves triggering other taxes as SDLT and legal fees, so clients should take professional advice prior to making any decisions.

 

• Dealing with short-term cashflow needs

Whether it is during your playing days or in a second career, you may experience unexpected costs, large one-off bills, and periods of uncertainty.

Having the ability to borrow wealth from your businesses can help tie you over and cover these costs, ensuring you can meet your financial obligations while continuing to enjoy your lifestyle.

 

• Avoiding borrowing when interest rates are high

When you are making high-value purchases, such as for homes or investments, you might choose to borrow money in the form of a commercial loan. Naturally, these will have an interest rate attached and, when interest rates are high, this can make the cost of borrowing more expensive.

Director’s loans offer you the ability to borrow money from your own businesses and charge a more competitive rate of interest, adding up to potentially significant savings.

Remember: the rate of interest must be in line with the ORI or the discount could be taxable as a benefit in kind, and there may be tax to pay depending on the circumstances of the loan.

 

• Mitigating future tax liabilities

New governments often change tax policies, and this new Labour government is unlikely to be any different. Using director’s loans, you may be able to delay loan repayments until the tax landscape is kinder and more efficient for you.

In doing so, you could effectively manage your tax liabilities while leveraging your company’s resources.

 

It is important to seek advice before borrowing or lending money

As you can see, loaning to and borrowing from your companies using director’s loans can be powerful in achieving for your financial goals.

However, before you start moving money between your personal and business finances, it is crucial to keep all the associated rules in mind. There are significant tax implications for making use of director’s loans, and falling foul of the rules could land you with an unexpected and unwelcome charge.

Furthermore, with the new government set to potentially change the tax regime in the UK, there could be new opportunities to explore – but these may be time-limited, and executing them incorrectly could be costly.

With all this in mind, it may well be worth speaking to a financial professional before you attempt to make loans or take money from your company yourself.

At ProSport, we are a team of experienced financial planners who have the knowledge and expertise to support you in successfully organising your wealth. We know and understand the various tax rules and how to effectively manage your wealth around them so you can make the most of your earnings, whether that is what you earn from sport or any other business interest.

Crucially, members of our team are former professional sportspeople themselves, and so understand and know how to solve the specific financial challenges you may face.

 

Get in touch

If you are a professional athlete and would like support managing your wealth, get in touch with us at Pro Sport. 

Email enquiries@prosportwealth.co.uk or call 01204 602909 to speak to one of our team today.

 

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Comments included within this article are not constituted as advice. If you require personalised advice, please contact your financial adviser.

The Financial Conduct Authority does not regulate tax planning.