Ltd Company with 2 different activities

[fotistso]

Hi,
I am an IT contractor working through my own ltd company. I'm thinking to invest in property soon and I wanted to do that through a ltd company.

What I'm trying to figure out is if I can use my existing company for that or I need to set up a new one?

The main reasons that I want to use my existing company are firstly the fact that I would like to use part of the company's cash to fund the purchase which I assume will be considered as a purchase of assets so I will not pay corporation tax (I may be wrong on that).

The second reason is that setting up a second company means that I need to pay double the accounting fees for preparing and filing tax return so if I could avoid that it would be a big saving.

Any views from anyone with similar experience would be much appreciated.

[TheFaQQer]

Hi,
I am an IT contractor working through my own ltd company. I'm thinking to invest in property soon and I wanted to do that through a ltd company.

What I'm trying to figure out is if I can use my existing company for that or I need to set up a new one?

The main reasons that I want to use my existing company are firstly the fact that I would like to use part of the company's cash to fund the purchase which I assume will be considered as a purchase of assets so I will not pay corporation tax (I may be wrong on that).

The second reason is that setting up a second company means that I need to pay double the accounting fees for preparing and filing tax return so if I could avoid that it would be a big saving.

Any views from anyone with similar experience would be much appreciated.

You don't need to set up a new company, but generally buying property through a limited company is considered a bad idea - lots of previous posts if you search for them.

[northernladuk]

Have a look at the search method as described in the FAQ section. We get asked this quite a bit and there are many discussions on property and LTDs here. Have a read of them first and I'm sure you'll find you answer.

Don't forget to ask your accountant about it as well

[Patrick@Intouch]

Setting up a second company to handle property investment is usually considered so that the assets (i.e properties) are protected from any litigation brought against the contracting company and from things like retrospective IR35 action.

You are also ensuring that the trading status of the contracting company is protected and that this does not inadvertently become an investment company. The danger of this is that any potential claims for distribution from the company as capital gains could be lost if the trading company does become an investment company.

Depending on the structure created it may also be an efficient way to move built up reserves from the contracting company without further tax implications.

[Jessica@WhiteFieldTax]

...which I assume will be considered as a purchase of assets so I will not pay corporation tax (I may be wrong on that).

It would be nice if it did, but alas not - investment in property comes from post Corporation Tax profits

In general agree with Patrick and others around a separate company.

[ChimpMaster]

Setting up a second company to handle property investment is usually considered so that the assets (i.e properties) are protected from any litigation brought against the contracting company and from things like retrospective IR35 action.

You are also ensuring that the trading status of the contracting company is protected and that this does not inadvertently become an investment company. The danger of this is that any potential claims for distribution from the company as capital gains could be lost if the trading company does become an investment company.

Depending on the structure created it may also be an efficient way to move built up reserves from the contracting company without further tax implications.

Yes pretty much this. A holding company can own your IT company and the Property company. Your IT company can then pay dividends up to the Holding company that can then distribute funds down to the Property company. As the dividend hasn't been paid out to you personally, it means that of course you won't have personal tax to pay on it.

You don't need a holding company. An alternative is to create a new company for Property investment and loan the funds from your IT company - but the loan will have to be paid back before you can liquidate the IT company in the future.

A holding company would be my preferred option. However, there are some challenges such as claiming for HMRC clearance under section 135, so that CGT is not payable on the share transfer from your IT Ltd to the Holding Ltd. This is to tow the usual HMRC line that you are restructuring for "bona fide commercial reasons".

@Patrick do you have experience of setting up holding companies for IT contractors?

[BrilloPad]

If your articles of association are fine then your company can trade in what it wants.

However its a bad idea for the 2 reasons stated above. Do it through personal money.

[independent]

Yes pretty much this. A holding company can own your IT company and the Property company. Your IT company can then pay dividends up to the Holding company that can then distribute funds down to the Property company. As the dividend hasn't been paid out to you personally, it means that of course you won't have personal tax to pay on it.

You don't need a holding company. An alternative is to create a new company for Property investment and loan the funds from your IT company - but the loan will have to be paid back before you can liquidate the IT company in the future.

A holding company would be my preferred option. However, there are some challenges such as claiming for HMRC clearance under section 135, so that CGT is not payable on the share transfer from your IT Ltd to the Holding Ltd. This is to tow the usual HMRC line that you are restructuring for "bona fide commercial reasons".

@Patrick do you have experience of setting up holding companies for IT contractors?

Hi ChimpMaster,

Just asked a similar question on another thread. But noticed that you have very well summarized the 2 structures I am considering.
You mention that you prefer the holding company option over the loan-to-prop-spv option. Can you please elaborate a bit more on the pros and cons that you must have taken into consideration and why you prefer the holding company option.

Many thanks.