Investing in property, but not going to SPV route

[lifexplorer]

Apologies as I know there are some variations of this question around, but a few quirks to my enquiry that I think make it worth a separate thread...

Looks like I'll going perm soon and may not be contracting for quite awhile, so want to use the money saved in my company for property investing (managed by my wife who's been doing this extensively for years personally and her parents).

My accountant seems to suggesting changing into a property company would be a bad idea... though as near as I can tell that's just because of the loss of EIR. However, I'm not bothered with losing out on EIR vs doing the following instead:

- Giving my wife a 50% share in the company and bleeding out £4k in dividends a year tax free (10% is low, 0% is lower!)

- Carrying out my plans to do a 2 year lease on a pure electric car with my company - I've run the numbers and this works for me quite well, especially with only 1% BIK over 2 years.. maybe go 3 years take a 3% BIK hit. Theoretically I could do this with a SPV, but thinking first year profits may not be not be that high initially... buying / renovating / tenanting or selling again takes time, and it takes time for the money to roll in as well on a tenancy).

- Use my company, re-purposed for BTL investing over the next 10-15 years or so (my wife would largely run this ...) she can take out a salary if tax efficient to do so (19% corp tax saved vs. personal tax at 20% still better than 19% corp tax + 10% EIR). Late 50s I'd probably sell up and chuck all the proceeds into a pension assumed I didn't hit whatever the allowance limits were in the future and save on tax incurred on capital gains within the company.

Is there anything particularly daft about this (high level) plan that I'm missing and/or about the perils of investing without going down the SPV route? I hear about concerns around differences between trading vs. operating profits, though honestly I'm not sure why that matters when it all gets taxed at 19% anyway...

My accountant seemed irrationally hostile to my conversation with them, and I've been generally unhappy with them (now that I know what I'm doing post April I'll be changing them soon..), hence the post here.

Thanks!

[eek]

Apologies as I know there are some variations of this question around, but a few quirks to my enquiry that I think make it worth a separate thread...

Looks like I'll going perm soon and may not be contracting for quite awhile, so want to use the money saved in my company for property investing (managed by my wife who's been doing this extensively for years personally and her parents).

My accountant seems to suggesting changing into a property company would be a bad idea... though as near as I can tell that's just because of the loss of EIR. However, I'm not bothered with losing out on EIR vs doing the following instead:

- Giving my wife a 50% share in the company and bleeding out £4k in dividends a year tax free (10% is low, 0% is lower!)

- Carrying out my plans to do a 2 year lease on a pure electric car with my company - I've run the numbers and this works for me quite well, especially with only 1% BIK over 2 years.. maybe go 3 years take a 3% BIK hit. Theoretically I could do this with a SPV, but thinking first year profits may not be not be that high initially... buying / renovating / tenanting or selling again takes time, and it takes time for the money to roll in as well on a tenancy).

- Use my company, re-purposed for BTL investing over the next 10-15 years or so (my wife would largely run this ...) she can take out a salary if tax efficient to do so (19% corp tax saved vs. personal tax at 20% still better than 19% corp tax + 10% EIR). Late 50s I'd probably sell up and chuck all the proceeds into a pension assumed I didn't hit whatever the allowance limits were in the future and save on tax incurred on capital gains within the company.

Is there anything particularly daft about this (high level) plan that I'm missing and/or about the perils of investing without going down the SPV route? I hear about concerns around differences between trading vs. operating profits, though honestly I'm not sure why that matters when it all gets taxed at 19% anyway...

My accountant seemed irrationally hostile to my conversation with them, and I've been generally unhappy with them (now that I know what I'm doing post April I'll be changing them soon..), hence the post here.

Thanks!

Yes, the plan is utterly insane on so many levels that I can't be bothered to deal with it.

Just close your company down and open another one for this business.

Also running a company car while not using or working for the company WTF...

[lifexplorer]

Yes, the plan is utterly insane on so many levels that I can't be bothered to deal with it.

Just close your company down and open another one for this business.

Also running a company car while not using or working for the company WTF...

Can you give me a one reason why it's insane (humour me...)?

The company car would still be used in my plan for company business... said business being a BTL business, though my next company year end would include a mix of business activities.

Business mileage is one of the various expenses involved with running a BTL business as well...remember, keeping the same company. As far as I can tell, tax treatment of a company car is pretty much identical whether it's used 1% of the time for personal use, or 99% of the time... and on a pure electric car that's a 19% corporation tax saving on the car costs in exchange for a 0% Class 1a NI/personal BIK tax hit on the P11D value of the car in the 2020-2021 tax year, followed by 1% hit in the 2021/2022 tax year.

Again, happy to for someone to tell me why this doesn't work... like saying "section xyz of rule q of HMRC says you need to do a minimum of 10000 miles on a company car..." or there's a rule that says corporation tax is doubled if your company changes SIC code during your year end or something...

Seriously, if there's something like that that's missing that everyone knows about and I've someone never stumbled across in my research let me know...

[Finance Contractor]

I can’t see anything wrong with the company car. In fact, given the tax advantages of electric, I think it’s a great idea.

IMHO anyone would be crazy though to keep a PSC past contracting. I think it’s best to kill it and it’s history as soon as possible. Transfer funds to a newly set up company and then wind up current PSC.

[ChimpMaster]

Nothing wrong with your thinking, but there are many variables and many options, and you need to start on the correct footing.

First, get a new accountant. I'm happy to recommend mine, who is well versed in IT and property accounting.

Second, yes you can change the SIC and the purpose of the company, if you won't be contracting anymore. This is an option I have considered and it's still one of my options, but not the preferred one.

Third, think this one through: it might be better for you to MVL and claim ER, if you are eligible. The proceeds will then be yours personally, to do so as you wish. You could then open a new SPV and loan those proceeds to that SPV, to buy property within the SPV. The funds you have lent the company will be repayable to you, tax-free, but of course not eligible as an expense against the SPV's corporation tax.
The SPV can pay you back the loan over a number of years, thereby creating a tax-free income for your family for many years, until the loans are re-paid. Note, the funds were already yours (personally) anyway, and you lent them into the SPV after having paid tax on them already. So you're not avoiding tax, you've just created another way to generate income with funds on which tax is already paid.

I have a busy day today so can't write much more, but you look like you have done some research and hopefully I have given you some more to do. Best of luck.

[lifexplorer]

I can’t see anything wrong with the company car. In fact, given the tax advantages of electric, I think it’s a great idea.

IMHO anyone would be crazy though to keep a PSC past contracting. I think it’s best to kill it and it’s history as soon as possible. Transfer funds to a newly set up company and then wind up current PSC.

Thanks to everyone who's written back - food for thought.

With respect to this post though just wanted to confirm something... when you speak about "killing it's history" are you suggesting that if I close down my company it would prevent a retrospective investigation by HMRC for my previous contracts' IR35 status?

I think I've seen this mentioned in passing in other threads I've read now that you bring it up... given the high frequency of client changes I've had over the last few years and various other things I've done I think such risks are low... but perhaps worth factoring into my thinking.

Thanks!

[Anagram]

Thanks to everyone who's written back - food for thought.

With respect to this post though just wanted to confirm something... when you speak about "killing it's history" are you suggesting that if I close down my company it would prevent a retrospective investigation by HMRC for my previous contracts' IR35 status?

I think I've seen this mentioned in passing in other threads I've read now that you bring it up... given the high frequency of client changes I've had over the last few years and various other things I've done I think such risks are low... but perhaps worth factoring into my thinking.

Thanks!

Hi LifeExplorer,


If you have taken action on your plans, could you let me know what option you choose and why? I am in a similar situation and try to gather as much info as possible.

[NowPermOutsideUK]

Chipmaster has posted about this so do a search

FWIW I did not do the MVL route and instead changed the SIC code and I really regret it - I could have paid 10% tax at the time and taken the money out cleanly. Instead I chose to change the SIC code and buy a property thinking I had saved 10% ER tax

But now I am stuck with a company which is generating an income true but I will have to pay 20% tax if I sell the company shares to someone and thats if I am lucky (still researching what happens on share disposal if outside UK and CGT but thats different).

So this is the only chance you get to pay 10% and reinvest the money in a new company or personally. Like I said if I knew then what I know now I would definitely have MVLd

[Lance]

Chipmaster has posted about this so do a search

FWIW I did not do the MVL route and instead changed the SIC code and I really regret it - I could have paid 10% tax at the time and taken the money out cleanly. Instead I chose to change the SIC code and buy a property thinking I had saved 10% ER tax

But now I am stuck with a company which is generating an income true but I will have to pay 20% tax if I sell the company shares to someone and thats if I am lucky (still researching what happens on share disposal if outside UK and CGT but thats different).

So this is the only chance you get to pay 10% and reinvest the money in a new company or personally. Like I said if I knew then what I know now I would definitely have MVLd

This ^^^^^^^

sometimes that amazing wheeze that sounds great on paper is just overly-complex and unforseen consequences come along.
At least when it's your money, it is actually your money.

I'd take this one stage further for simplicity. Instead of buying a property to rent and have all the issues that come with that (and the future issues as society starts to frown more on greedy landlords), why not invest it in the property you live in? That way you enjoy it, no hassle.

I don't really see why ex-contractors see a monthly income that rarely exceeds what you'd take in 2 days, to be worthwhile for the hassle.
Maybe if you have no high value skills, and can maintain the properties yourself, and are able to run a highly leveraged portfolio it maybe makes sense. But outside that I just don't get it.

[sludgesurfer]

This ^^^.....all day long....

I must work with 25 Ltd contractors. Property investing seems to be a religion for a lot of them. I see them bending over backwards to make it work, mortgaged to the hilt. Some have. Normally those that can cashflow their next purchase outright from accumulated rental income.

Investing in any cyclical asset class works at the right point in the cycle. In my opinion, with property, that point is not now.

I don't like it as an investment on a small scale and certainly don't like it as a business on a small scale with a narrow geographic focus. It's illiquid, with high transaction fees and it involves a host of variables between your tenant's wallet you and your own. Putting the properties inside a company adds a couple more. I appreciate that I'm talking of a rental business and not a buy and flip one. Perhaps with a specific practical skillset at your disposal and a bunch of sweat equity, buying and flipping is a more workable model.

My preference is to hold property investment trusts with long track records of healthy yields (some of which are presently trading at significant discounts to NAV) bought with my own money as part of a diversified portfolio inside a SIPP or ISA that you don't even have to declare to the tax man and avoid the gymnastics described above. Is it boring? Perhaps. Will it make you rich overnight? No. But it has a proven track record of doing so over any appreciable timeframe.