Buying a property through company or via loan to SPV

[ChimpMaster]

All

Barclays halved their business savings interest rate to 0.25% a while back and it's utterly depressing to see such a paltry return on my warchest. Given my experience in properties, I know that I could achieve returns of anywhere between 5% to 15% (depending on the kind of rental) so I’m thinking of:-

1. Setting up a SPV.
2. Loan £x from IT Ltd to SPV.
3. SPV buys property outright, i.e. no mortgage needed.
4. Rental income comes into SPV.
5. SPV pays commercial rate of interest to Ltd.
6. Loan of £x remains outstanding until I quit contracting and MVL.

2 questions:
1. On MVL, can the loan be re-paid through a ‘paper transaction’ in some way? i.e. I might not want to sell the property to repay the loan.
2. Anyone have any real-life experience of doing this?

[ChimpMaster]

Guys

Does no one here have thoughts on the scenario from my post below?

I'm looking at buying a commercial building with a view to converting to flats, using an inter-company loan from my IT Ltd to a property SPV owned by myself. However, my IT Ltd will be going through MVL within the next couple of years and I need to understand what happens to the loan at that point, assuming it can't be (physically) paid back by the SPV.

Of course I'll speak with the experts but it's not easy as I have to gather together my IT account, my property accountant and Mr. Maslin the MVL expert!

[Maslins]

Like you suggest, I think there's three separate things here.

1) normal IT contracting,
2) the property stuff,
3) the MVL.

I'm fairly confident with (1), and (3) if it was a basic liquidation, but given (2) is an integral part of the plan, and you're realistically looking at an "in specie" distribution from the MVL, I don't feel too confident advising. However, a few thoughts:

- if you don't want to MVL for a few years, the SPV will buy the property, do the conversion into residential, and then let out, possibly at that later stage the SPV could comfortably raise a mortgage on the flats to then repay IT contractor Co prior to MVL? If property market continues to grow at current rate and conversion is successful, then hopefully by that stage you could have a fairly modest LTV so interest might not be too penal.

- if it can't repay the loan, then it probably is possible to do the paper only distribution, basically to shunt the loan to be payable to you personally. You may find this prevents you using the "cheap and cheerful" online liquidators though, as it's non standard...though there may be ways around it.

- presumably IT contractor Co will continue contracting and the trading income will dwarf the interest paid by the SPV? Assuming so, hopefully entrepreneurs relief wouldn't be at risk if/when you MVL.

- curveball - but worth considering buying the commercial property through a pension? I know IFAs have a bad reputation on here, but worth discussing with one. Eg I know pensions can't buy residential property...but I have a feeling in the back of my mind I once heard that they can buy commercial and convert to residential (apologies if I've actually dreamt this).

[Chart Accountancy]

This will create non-trading loan relationship between connected parties. On the write off the loan, the transaction will be disregarded for corporation tax purposes. However, the issues is rather that you will have your IT company distributing funds ‘tax free’ at close out by creating a non-repayable loan between connected parties. If it is known that the receiving company will not be able to repay the loan at its granting then this is likely to be seen as a transaction where it has been incurred with the aim to keep income out of charge to tax.

Ideal scenario would be to close out your IT company and extract funds tax efficiently which you can then invest in your new company which would remove all the complications but of course incur higher tax bill. Alternatively, you can have the new company under the ownership of your IT company, where the IT company can make an investment into the new company and keep the two companies running. However, this is rather a tax specific/organisation restructuring question where accountants knowledge can be limited so that you should seek a specialist advice to ensure you are all set up in the most appropriate manner.

[ChimpMaster]

Thanks for your responses guys. My (good) IT accountant is going to have a think over this and let me have his thoughts too. I'll be writing to my property account over the weekend also.

A clean-cut solution would be to MVL with ER and then invest in a property venture. Timing won't allow this because the opportunity is here now and the funds are needed.

It's also unlikely we'll be able to build and refinance quickly. We're looking at a 3 to 5 year plan for completion of works.

Can't use a pension. Good idea but doesn't suit my circumstances unfortunately.

I'll probably need to sell other properties or refinance to raise the funds to repay the loan before MVL. Seems that this might be the only viable option.

Thanks for your thoughts guys, appreciated.

[jmann]

Wouldn't it be easier to get short term bridging loan to pay the company back and then go ahead with MVL?

[Crossroads]

Wouldn't it be easier to get short term bridging loan to pay the company back and then go ahead with MVL?

Sounds like it, I'm in a similar position myself... the desire to avoid tax and use company funds is always strong but usually full of complexity, expense and risk. Raise some cash personally in the short term against existing property, do the MVL and then get things in order. Bound to cost a few quid but sounds like the best bet overall if you can do it.

[ChimpMaster]

In case anyone reads this thread in the future:

I am going for it. The offer has been accepted and holding deposit paid, solicitor instructed and architect hired. 8 weeks to exchange based on pre-planning and a delayed completion.

I don't have all the details worked out yet and this could be a make or break venture for me, but if I don't do it then I will never find out.

Feel free to tap me up for information if needed.

Feel free to provide non-committal advice if you can!

[pjt]

In case anyone reads this thread in the future:

I am going for it. The offer has been accepted and holding deposit paid, solicitor instructed and architect hired. 8 weeks to exchange based on pre-planning and a delayed completion.

I don't have all the details worked out yet and this could be a make or break venture for me, but if I don't do it then I will find out.

Feel free to tap me up for information if needed.

Feel free to provide non-committal advice if you can!

Good luck, I'm looking into something similar would be good to hear how it goes!!

[MarillionFan]

Loans Between Limited Companies For Property Investment | Optimise Accountants

Checked CUK first, but was now looking at the same.

Thinking of the same. Looking to setup an SPV with funds personally and from my LTD with a view to purchase a number of properties, utilizing new SPV Mortgages. Planning to pay back personal loans over 5 years. Trying to work out the best pension angle.

Chimp, care to update the thread please