Company Reserves.

**TheFaQQer** · 12 October 2009, 13:23

A) You would need to pay some kind of commercial rate to avoid it being a benefit in kind. Probably best to talk to your accountant to see whether it's worthwhile.

B) If the company invests too much, then you may need to reclassify the business in terms of what it does.

I have no idea what the relative capital gains implications would be.

**northernladuk** · 12 October 2009, 14:06

Your going to get taxed on the profits made either in hand or in kind either way you do it.

Gotta say with mortgages at the level they are at now, bar the deposit is it really worth using money you could get taxed on to prop up a low percentage mortgage that is being paid for by the tenant anyway?

**WetBehindTheEars** · 12 October 2009, 14:27

I reckon the Ltd has got just about enough reserves to buy a decent house outright. I then reckon that I could ask in the region of £600 to £700 pcm. Even taxed that beats the £40 pcm A&L are giving me. And, with a bit of luck, the housing market might recover and the value of the property will increase. Sounds like a winner to me?

My accountant doesn't really appear to have much interest in answering these "what if" type questions for me. They really just want to do my annual accounts, collect their £1200 and get shut of me.
This thread isn't about the service I get from my accountant though. I'll leave that for a Friday afternoon sometime and have a proper rant.
The point is, I come to this forum for the banter, and because I often get better advice than I do from my accountant. I honestly don't think my accountant has all the answers and is too busy to take the time to find out. Why would they unless they were going to charge me for the advice.

**Maslins** · 12 October 2009, 14:32

You can do both, however both will have pretty unpleasant tax consequences so I wouldn't recommend either.

Originally posted by WetBehindTheEars View Post

A> Take the money out as a loan. The Ltd lends me the money as an individual and I invest it and agree some sort of repayment terms with the Ltd. What could I get away with? As long as I am making regular token repayments will this be enough?

As mentioned above, you'll have a benefit in kind if you don't pay a commercial rate of interest on it (which is currently low, so that in itself isn't a big problem).

What's more of a problem is that if you're borrowing long term, the company will have to pay over a temporary tax of 25% of the amount you owe the company, for as long as it is owed. Google "S.419" for more details on this.

Originally posted by WetBehindTheEars View Post

B> Invest it in the Ltd company name. So any property I bought would be owned by the Ltd company and rents payable to the Ltd. What are the implications of this one?

Companies making capital gains are taxed at the normal corporation tax on those gains, and then the funds are still in the company (ie you may pay further tax on the dividend when you draw funds out). Therefore if you later sell the houses for a profit, the Co will get taxed at ~21%, then if you're a higher rate taxpayer you'll pay a further 25% on the dividend.

As an individual owning the properties directly, you'd pay only 18% tax (residential investment properties are not business assets so do not benefit from entrepreneurs relief), and you get the first ~£10k tax free.

I think your best bet would be to actually close the company down and draw the cash out now (by CGT if you can convince HMRC to let it apply), then use the funds personally to buy the properties.

**WetBehindTheEars** · 12 October 2009, 14:54

Thanks for the reply Maslins.

A very detailed response.

Not what I wanted to hear, but a very good reply.

It seems whichever way you turn, HMRC is there waiting to have your pants down!

I understand why people who don't bother to work use the saying "working is for mugs".

**jmo21** · 12 October 2009, 15:05

Accountant != financial advisor

**kaiser78** · 12 October 2009, 16:06

Following completion of my annual corporate accounts, I had a wedge in the business account as well. My accountant has advised me to take this out as a Directors Loan Account payment, as the most tax efficient way.

So I have now paid a wedge off the mortgage, topped up equity ISAs and am buying the wife a new conservatory...

**kaiser78** · 12 October 2009, 16:10

Originally posted by WetBehindTheEars View Post

My accountant doesn't really appear to have much interest in answering these "what if" type questions for me. They really just want to do my annual accounts, collect their £1200 and get shut of me.

Sounds like not very good service - part of the £1200 should include advice like that as part of your routine business planning without additional charging and should be also accessible at all times. My accountant is only too happy to discuss such matters with me and is always available if I need him (including weekends).

I would ditch yours and find someone else.

**WetBehindTheEars** · 12 October 2009, 16:12

Excellent.

@Kaiser - can you go in to a bit more detail about how you went about it? Sounds like exactly what I want to do.

Company Reserves.