Buying Spanish Property Via Ltd Company to reduce tax burden

[contractmonkey]

Hi,

My wife and I are both contractors and have a Ltd company we work through. We use this to pay ourselves a basic salary and dividends, kepping some money in the business.

We have just been loaned £100,000 to be paid back over 24 months by a family member to purchase a property in Spain. We are looking at the best possible way to maximise this money and I'm looking for some help on doing this.


Option 1:
Purchase the property jointly as Husband and Wife
Cons: Loan repayments to family member will be from our Dividends payments meaning that we will have to pay tax on them.
Bens: Simple to do.


Option 2:
Introduce the £100k into the business via a credit to the Director's Loan account then purchase the property via the UK Ltd company.
Bens: Loan repayments can be extracted from Director's Loan account with no tax to pay.
Cons: Ongoing costs for company should we decide to stop contracting

Any thoughts / comment or alternatives?

Thx

[northernladuk]

We have had many questions about company money and property be it BTL, own home, for children etc and the answer always comes back to keeping your company and your property separate. With the Spanish economy the way it is and so many people having to dump their properties on the bank over there I would suggest it was introducing a level of risk you really don't want associated with your company.

Try the search function explained in the thread below to look for all the other threads relating to buying/loaning money through the company...

http://forums.contractoruk.com/welco...uk-forums.html

[contractmonkey]

We have had many questions about company money and property be it BTL, own home, for children etc and the answer always comes back to keeping your company and your property separate. With the Spanish economy the way it is and so many people having to dump their properties on the bank over there I would suggest it was introducing a level of risk you really don't want associated with your company.

Try the search function explained in the thread below to look for all the other threads relating to buying/loaning money through the company...

http://forums.contractoruk.com/welco...uk-forums.html

Thanks for the reply and the hints for the search function. I have already searched but can't find anything specifically related to my situation as I'm transferring money into the company via the loan account, purely to avoid having to pay back the loan out of dividends money that will be taxed. The only caveat as I see it would be capital gains tax over the long term, but with the state of the Spanish market I don't expect to see any. The main aim of this purchase is to avoid having to pay for regular holidays that we take in Spain.

[Jessica@WhiteFieldTax]

As NLUK says, the normal conclusion is its best to keep companies and properties separate - even if that means funding deposits and loan repayments from taxed income.

There are various reasons behind this:

~ simplicity
~ CGT treatment
~ IHT treatment
~ protecting investments from trading risk

This would apply for UK or overseas properties, residential and commercial.

[northernladuk]

The only caveat as I see it would be capital gains tax over the long term, but with the state of the Spanish market I don't expect to see any. The main aim of this purchase is to avoid having to pay for regular holidays that we take in Spain.

Be prepared to write it off unless something changes in the next 10 years. You can get some eye popping deals at the moment because a) most properties are now owned by the banks who want to get shut of them or b) people are close to bankrupt so will take anything. If you get one the chance of you selling it at anytime in the next few years is close to nil. I have a beautiful Spanish property which I can hardly rent out and can't get rid of and everyone in my urbanisation is feeling it. Most of us are happy to ride it through for now but over 1/3rd of the properties are now in the banks hands.

Be very careful!!

[contractmonkey]

As NLUK says, the normal conclusion is its best to keep companies and properties separate - even if that means funding deposits and loan repayments from taxed income.

There are various reasons behind this:

~ simplicity
~ CGT treatment
~ IHT treatment
~ protecting investments from trading risk

This would apply for UK or overseas properties, residential and commercial.

Thanks for the feedback. To give a bit more background here:
The property will be residential but will not generate an income as it will purely be used for holidays for family members.
Aim is to hold it long term 20+ years


Playing devils advocate here:

~ simplicity
How is it more difficult than operating a Ltd company as I do at the moment?

~ CGT treatment
I have no intention of selling the property in the short term and with the Spanish market the way it is CGT should be minimal. By purchasing through a UK LTD I also avoid a 7% sales transfer tax for my Spanish property so this would offset CGT.

~ IHT treatment
One of my main drivers for doing this is to avoid IHT in Spain which is currently a lot worse than the UK. Purchasing the property via a UK LTD.

~ protecting investments from trading risk
Yes agreed, there could be a minimal risk here but it would be one I would be prepared to take.

Keen to hear more comments on this approach.

[Jessica@WhiteFieldTax]

Simplicity isn't so much about operating the company day to day, as keeping a weather eye on longer term issues, eg if you wanted to close the company down and move back to permenant employment. I've seen many many people bemoaning putting properties - or other investments - in companies a generation ago, and now stuck in that structure.

On the IHT and CGT issues, the savings on overseas tax are valid considerations, and I suspect you either need to do the maths yourself or sit down with your accountant - to do justice to it goes beyond a forum posting. Obv you will have to take some long term views on growth and tax rates,and you will need to consider overall estate planning - sometimes there have to be compromises.

HTH