Buying a commercial Property - through ltd or not?

[Alan @ BroomeAffinity]

The CIHC provisions are complicated but probably wouldn't apply in this case as there is almost certainly going to be a "management function" in the property business which would in all likelihood take it out of CIHC soope. It would need to be carefully looked at, of course.

Stamp duty, insurance etc would all need to considered as well. As would disposal plans.

[Jessica@WhiteFieldTax]

Rule of thumb is do trading via a company, and hold investments outside a company - to this end I would be starting to suggest holding the investment property personally or in a LLP (a LLP being taxed in a similar way to an individual). Issue here is taxation: long term assets fare better away from Corporation Tax, trading fares better in in.

VAT needs careful thought. On the face of it you have a qualifying residential development which allows inward construction work to be subject to 5% reduced vat - that only applies to constriction services, not buying materials yourself - if you are self managing you may want to set up a separate construction company to get the benefit of 5% v 20%. Bear in mind the vat input tax will not be recoverable on a commercial to residential conversion.

Also factor in any vat on the purchase of the property, if it is chargeable, dependant in whether your relative has opted to tax. This is also likely to be "sticky" - that's to say not reclaimable on sale or conversion due to the fact you will be making exempt supplies.

[Jessica@WhiteFieldTax]

The CIHC provisions are complicated but probably wouldn't apply in this case as there is almost certainly going to be a "management function" in the property business which would in all likelihood take it out of CIHC soope. It would need to be carefully looked at, of course.

Stamp duty, insurance etc would all need to considered as well. As would disposal plans.

Agree CIHC won't apply.

CTM60710 et seq confirms property investment isn't an investment for CIHC purposes. CTM60710 only refes to "land and estates" but exempts rental income, and in CTM60740 it's confirmed land includes buildings.

CTM60710 - Close companies: close investment holding companies: definition

[JRCT]

Rule of thumb is do trading via a company, and hold investments outside a company - to this end I would be starting to suggest holding the investment property personally or in a LLP (a LLP being taxed in a similar way to an individual). Issue here is taxation: long term assets fare better away from Corporation Tax, trading fares better in in.

This is very helpful advice. But, in this case, there would be both. The property purchase would be an investment. The rental income would be trading.

How would that work?

[d000hg]

What reasons do you have for NOT setting up a separate Ltd company for this?

[Batcher]

Can't you use your pension to buy commercial property as an investment vehicle?

[Jessica@WhiteFieldTax]

This is very helpful advice. But, in this case, there would be both. The property purchase would be an investment. The rental income would be trading.

How would that work?

Two possibilities.

(a) the greatest yield is likely to be capital growth. So simply treat rent as investment return, and inter ailia personal income. Advantage simplicity. Downside higher rate tax.

(b) treat as investment and own personally, but grant a sub lease to a corporate vehicle for managing the property and collecting rent. Advantage, flexibility and higher rate mitigation. Downside complexity and lack of transparency.

[Jessica@WhiteFieldTax]

Can't you use your pension to buy commercial property as an investment vehicle?

Given its going to have a predominately residential use, probably not.