Buying residential property under Limited Company

[BrilloPad]

1) Is it advisable to buy a house under company name?

No

[RND]

Just a quick question as you told you run a buy-to-let property business ...is that your LTD company got BTL Mortgage or is it in name of the director....today most banks dont have BTL mortgage to companies...

[LucContractor]

I run a buy to let property business as well as being an IT contractor. Its not worth buying a property through the company unless its something like a BTL or a proper commercial premises. You still have to pay CGT if you liquidate it etc etc...Its also a lot more difficult to get a mortgage for a commercial property and they aint cheap..!

Hi Smalldog,

I am an IT contractor as well and I am thinking of investing some money in properties.
But I am rather thinking of buying properties (on auctions), refurbishing and put back on market. I know I'll be paying CGT - but I will treat this as additional income...on which I would have to pay 20% tax anyway... (does this mean I would need to pay CGT and corporation tax as well?)

What is the best option for me? Buying properties via my existing Ltd company or set up a new company and run the property business this way?

Please advice...

thank you
Luc

[northernladuk]

Hi Smalldog,

I am an IT contractor as well and I am thinking of investing some money in properties.
But I am rather thinking of buying properties (on auctions), refurbishing and put back on market. I know I'll be paying CGT - but I will treat this as additional income...on which I would have to pay 20% tax anyway... (does this mean I would need to pay CGT and corporation tax as well?)

What is the best option for me? Buying properties via my existing Ltd company or set up a new company and run the property business this way?

Please advice...

thank you
Luc

Don't forget taxed on profit and taxed when you take money out of company as well....

[Miss Kitty Woo]

Buy investment property with ltd company profits

Hi, I have a slightly different slant on this topic I would welcome views on. I have profits in my ltd company (over and above warchest) that, when combined with some additional funds raised from my personal mortgage, would be sufficient to buy a holiday home. I am trying to find out whether buying the property in the company name would be tax efficient as opposed to me having to transfer a sizeable dividend to me personally and then paying personal tax on it (I am over the basic rate of tax with my usual salary + dividends). My accountants are frankly pants and I am thinking about taking tax advice when I stumbled on this thread. Does my thinking make sense? I know if I ultimately sell it the ltd co will pay capital gains and if the property makes a profit on rental then the ltd co will pay tax on this (can I offset the personal mortgage interest and other reasonable costs like maintenance?). However this still seems like a way of getting the money 'out' of the company without paying personal tax? If anyone has any good advice I look forward to receiving it. Oh and btw I know it becomes an asset of the company should I ever become bankrupt.......

[northernladuk]

Hi, I have a slightly different slant on this topic <rest of stuff>

It doesn't appear to be slightly different at all.. Is it worth buying a property with company money? No, particularly when mixing with personal money.

[Greg@CapitalCity]

Whenever I get asked this by clients, I always suggest the first step is to approach a lender, and see if they will lend your contractor company a mortgage. In all cases, our clients have never been able to find a bank willing to do this, which makes any further discussion of tax efficiencies etc a moot point.

[ASB]

Whenever I get asked this by clients, I always suggest the first step is to approach a lender, and see if they will lend your contractor company a mortgage. In all cases, our clients have never been able to find a bank willing to do this, which makes any further discussion of tax efficiencies etc a moot point.

Greg,

But does the company really need to get the mortgage?

I buy property personally with the benefit of a Mortgage. Deposit either from personal funds or company funds.

I execute a deed of trust in favour of the company.

Company now has an asset of the property, mortgage is personal, company repays this at the rate of mortgage payments. Of course there is the possibility that this would be a breach of the mortgage conditions - but that is a different issue.

Another (somewhat off the wall) thought is that there is a principle that taxation consequences flow from the beneficial rather than legal ownership of the asset. It may potentially be possible to document this in a way which would hold up to scrutiny to treat it as a company asset even though nominally personally owned. A decent lawyer would be able to assist.

A further point is also that if the property is personally owned there is nothing to stop it being leased to the company and managed by the company.

----------------

Anybody seriously thinking about owning or operating property through a company should probably consider this

Property Company Tax Advice Guide 2012/13

Looks at pros and cos. Some specific circumstance warrant it being company owned, but not many.

[lithium147]

I imagine the driver for this would be that you have alot of money sitting in your company that you dont want to withdraw because it will be taxed at the higher tax limit.
So you want to make this money work better for you.
Another way could be to loan this money to yourself. As long as you pay interest on this loan (4%), it should not be treated as a benefit.
Once you have the loan from the company, you can combine this with you personal funds to have a substantial deposit for a personal loan. This should give you a much better rate of interest, or give a much higher potential mortgage amount.
Also, the interest paid to the company, is a profit for the company, so you are only losing 20% of this, effectively a 0.8%.

When applying for the personal loan, you might have to declare the loan from the company, so that might lower the amount you can borrow.

Also, there more complicated rules on the company side of the equation:
HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained
I think these rules apply regardless of whether you pay interest on the loan.
If you dont pay the loan in 1 year and 9 months, you have to pay 25% of the loan to the govt, which you can claim back later on (upto 4 years).
Also, there is mention of a £15,000 limit.
So seems like this strategy is only useful for small short term loans..

Official rates of interest:
HM Revenue & Customs: Beneficial loan arrangements - official rates

HMRC loans:
HM Revenue & Customs: Loans provided to employee

Article in forum:
http://forums.contractoruk.com/accou...epayments.html

[Jessica@WhiteFieldTax]

I think these rules apply regardless of whether you pay interest on the loan.
If you dont pay the loan in 1 year and 9 months, you have to pay 25% of the loan to the govt, which you can claim back later on (upto 4 years).

Correct, almost. The time limit for repayment is 9 months and 1 day after end of financial year the loan is drawn in, otherwise the 25% is due.

The 25% is refunded - normally by offset to Corporation Tax otherwise due - 9 months and 1 day after the end of the financial year of repayment.

IMV the benefits of loans are overrated. If you are a 40% tax payer then the 25% equals the extra tax you would pay on a dividend, however with a loan you get that tax plus the interest charge - actual or BIK - as well. To that end, in most cases, its fiscally better to take a dividend unless its short term.

On buying properties, although using company money - which has been subject to Corporation Tax but not personal tax - is attractive, I always advise against it:

~ CGT regime is better for personally held assets
~ Assets are best kept in separate structures from trading
~ On the basis you are investing for growth, its better to take the personal tax hit now on £X rather than in a decade on £X plus growth

That said, as always, devil is in the detail, and you can argue the otherway.