Originally posted by Batcher
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Previously on "Buying a commercial Property - through ltd or not?"
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Originally posted by JRCT View PostThis 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?
(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.
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Can't you use your pension to buy commercial property as an investment vehicle?
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What reasons do you have for NOT setting up a separate Ltd company for this?
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Originally posted by Jessica@WhiteFieldTax View PostRule 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.
How would that work?
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Originally posted by Alan @ BroomeAffinity View PostThe 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.
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
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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.
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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.
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Originally posted by Alan @ BroomeAffinity View PostPretty much. But there are also complications around VAT - particularly the FRS.
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No probs. PM me if you need anything more specific. Happy to talk through process with you.
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Originally posted by Alan @ BroomeAffinity View PostPretty much. But there are also complications around VAT - particularly the FRS.
Thanks for this.
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Originally posted by jmo21 View PostWhy though?
Is it simply if one side fails then its in a separate company and won't bring the others down?
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Originally posted by jamesbrown View PostI don't see how you can combine the two (sensibly).Originally posted by Alan @ BroomeAffinity View PostMy preference would be to keep it away from your contracting company.
Is it simply if one side fails then its in a separate company and won't bring the others down?
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In thinking about how you fund your deposit. If you take a divi from your contracting company, then you would almost certainly have to pay higher rate tax. You could avoid this by creating an SPV, which would have shares in the ConCo. A special divi can then be declared to transfer funds into SPV. There wouldn't be higher rate tax on this. In addition you could avoid (or at least defer) higher rate tax in the property profits by keeping them in SPV as opposed to divi-ing them out. Takes a wee bit of work and planning but in many circumstances it can work out well.
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Originally posted by Alan @ BroomeAffinity View PostThe simple answer is there's no simple answer. Depends on your funding requirements, tax position, vat position among other things. My preference would be to keep it away from your contracting company. Have you considered an SPV (special purpose vehicle) company for this?
The aim is to have 5 flats bringing in aprox £500/month each + an additional £500 from the shop for a total income of aprox £3000/month. It is likely to start turning over profit pretty quickly so I can see myself quickly going into the 40% bracket? Or will that not matter as I can decrease my Dividends accordingly.....?
Also what do you mean by funding requirements, tax position, vat position? I spoke to mortgage adviser and they said I could get mortgage either through the company or personally without a problem.
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