Reply to: Buying a property through company or via loan to SPV

[jamesbrown]

That's quite a bit of conjecture there.

Rumours abound on ER but I'm yet to hear anything on CGT being increased. I'd say that is unlikely.

Though one shouldn't plan their business or life around taxes, it's often hard not to because governments use taxation as a means to encourage or discourage specific activities. This in turn does make it incredibly unfair when they then change the rules while you're midway playing.

Sure, like I said:

An increase in GGT is also being mooted if the recent press is to be believed

For example:

Prime Minister launches task force to talk tough on trade with Brussels as Brexit D-Day looms | Daily Mail Online

Instead, is understood a hike in Capital Gains Tax has been mooted by Treasury officials. Currently, the tax on the profit from the sale of second properties is set at 28 per cent, with tax on the profit on the sale of other capital assets set at 20 per cent.

Speculation, obviously.

But you need to bear in mind what has been ruled out. No increases in VAT, income tax or NI. Increases in fuel tax look unlikely. They have a lot of ambition with few sources of revenue. CGT looks like a good option, as far as tax rises. No coincidence, then, that ER is on the list.

Still, someone is always "midway". TBH, I'm surprised ER lasted this long.

[ChimpMaster]

Yes, ER is available for trading companies not CIHCs. It's possible that you could have a property company that develops properties, rather than invests in the property sector, but most will be investment companies/CIHCs. I wouldn't worry about ER anyway; that will most likely be gone very soon. An increase in GGT is also being mooted if the recent press is to be believed and CGT is already 28% for property sales vs. 20% for other assets.

That's quite a bit of conjecture there.

Rumours abound on ER but I'm yet to hear anything on CGT being increased. I'd say that is unlikely.

Though one shouldn't plan their business or life around taxes, it's often hard not to because governments use taxation as a means to encourage or discourage specific activities. This in turn does make it incredibly unfair when they then change the rules while you're midway playing.

[jamesbrown]

One point to note RE "holding companies" is that, I think, one cannot claim ER upon MVL should that ever be required.

Can someone confirm?


PS: I'd go with option 2 as well.

Yes, ER is available for trading companies not CIHCs. It's possible that you could have a property company that develops properties, rather than invests in the property sector, but most will be investment companies/CIHCs. I wouldn't worry about ER anyway; that will most likely be gone very soon. An increase in GGT is also being mooted if the recent press is to be believed and CGT is already 28% for property sales vs. 20% for other assets.

[wattaj]

Who is your accountant? i.e. think about whether they know enough to be able to advise you on property investing/accounting. Else PM me and I'll send you my accountant's details. He is well versed in IT and in Property accounting.

There are a number of ways in which you can utilise existing funds to invest in property, for example:-

1. Create a Holding Company (group) structure.
2. Loan from IT company to Property company (SPV)
3. Buy property within your IT company - not usually recommended.

These options assume you don't want to extract the Ltd funds personally and then buy the properties.

There is already a fair bit of info on this thread and elsewhere on the 'net but feel free to ask any specific questions you have.

I went with option 2. There are ways in which to deal with this loan eventually. My choice is to re-mortgage the property and pay back the loan so that I can eventually MVL the IT company.

One point to note RE "holding companies" is that, I think, one cannot claim ER upon MVL should that ever be required.

Can someone confirm?


PS: I'd go with option 2 as well.

[ChimpMaster]

Hi ChimpMaster, I'm in a similar position to where you were (surplus profit in ltd company and want to invest without going down MVL route) but as hard as I try, I can't get a definitive explanation of what to do from my accountant. Any advice / help gratefully received.

Who is your accountant? i.e. think about whether they know enough to be able to advise you on property investing/accounting. Else PM me and I'll send you my accountant's details. He is well versed in IT and in Property accounting.

There are a number of ways in which you can utilise existing funds to invest in property, for example:-

1. Create a Holding Company (group) structure.
2. Loan from IT company to Property company (SPV)
3. Buy property within your IT company - not usually recommended.

These options assume you don't want to extract the Ltd funds personally and then buy the properties.

There is already a fair bit of info on this thread and elsewhere on the 'net but feel free to ask any specific questions you have.

I went with option 2. There are ways in which to deal with this loan eventually. My choice is to re-mortgage the property and pay back the loan so that I can eventually MVL the IT company.

[Jonat99]

Help needed!!!

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!

Hi ChimpMaster, I'm in a similar position to where you were (surplus profit in ltd company and want to invest without going down MVL route) but as hard as I try, I can't get a definitive explanation of what to do from my accountant. Any advice / help gratefully received.

[DesDixon]

Going back to the main option of the Holding Co: I am still looking at this as a longer term option, in that I could move my property portfolio into a SPV owned by the Holding Co. The IT Co would then move funds across (dividends) to the Holding Co > Property SPV, which I could use to pay off the mortgages. This would eventually give me my pension fund in the form of low/no mortgage BTLs held in the SPV. On retirement I would simply liquidate the IT Co but keep the SPV.

Hi,

Looking at this at the moment and I wondered what shareholding the Holding Co has over the Contractor Co and Property Co?

i.e. is it 100% ownership?

[ChimpMaster]

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

Hi MF

I didn't proceed with the property development plan. Was proving to be too needy on 3 fronts: financial, time and stress.

I did a lot of research, however, and the optimal structure would have been to create a holding company that would own the IT Co and the Property SPV. The Holding would need to buy the IT Co shares but you would claim for relief on the capital gain crystallized on this transaction.

Dividends could then be shifted from IT Co > Holding Co > Property Co. As the dividends aren't coming out of the corporate structure to you personally, there would be no income/dividend tax due on this move of funds.

BTW Optimise are my property accountants.

Other options are to use loans directly from IT Co to Property Co. This incurs interest costs but no 'penalty' for long-term loans, i.e. section 455, which only applies to director's loans. Bear in mind that an outstanding loan needs to be repaid (or written off and tax paid) before you can liquidate/MVL the IT Co.

I've read on other posts here that the IT Co could own the Property SPV directly and pay dividends to it. This structure was never proposed to me but perhaps it complicates MVL, so it didn't interest me.

Going back to the main option of the Holding Co: I am still looking at this as a longer term option, in that I could move my property portfolio into a SPV owned by the Holding Co. The IT Co would then move funds across (dividends) to the Holding Co > Property SPV, which I could use to pay off the mortgages. This would eventually give me my pension fund in the form of low/no mortgage BTLs held in the SPV. On retirement I would simply liquidate the IT Co but keep the SPV.

Transferring personally-held properties into a SPV can incur SDLT and CGT, but incorporation relief is available if you can demonstrate specific rules. One such rule is that you treat your properties as a business and not as an investment, and that you spend a certain amount of time on the business each week. I would advise reading into this as SDLT and CGT can make this whole plan prohibitive.

Good luck.

[MarillionFan]

Playing devil's advocate here, but with the top two examples on that website, yes the difference in tax liability is massive...but mainly because in option 1 the individual owns the property, in option 2 a company does. If at some point further down the line the individual wants to get their hands on the property (or cash from selling it), they're likely going to pay a huge chunk in tax then. Ie it's predominantly delaying rather than saving tax.

Also, who's to say that the recently introduced rules restricting BTL mortgage interest tax relief for higher earners won't be ported across to Ltd Cos? There's a reasonable expectation by many on here that public sector IR35 changes were used as a "test" before pushing into the private sector too...does the same logic not hold for interest restriction rules? Who knows, but it's not a crazy though.

Plus you mention stamp duty, do be aware that's any time the asset is "sold". So as an example, you go for this plan now, a Ltd Co buys several BTL properties. Then in a year or two, the chancellor changes the rules to clobber Ltd Co BTL companies. What's your next move? Reluctantly accept it? Or then transfer the properties into your personal name (not only then incurring most of the personal tax you delayed at the outset, but also stamp duty again)?

I'm not saying it's definitely a bad idea, but do ensure you consider the cons as well as the pros before jumping in head first.

Good article in this months Money Observer which has a couple of pieces. One on BTLS in Ltd companies and the best approach. The second is to be aware of what could happen to investments / tax relief if Corbyn gets in, to whit you points above could be valid.

[Maslins]

Playing devil's advocate here, but with the top two examples on that website, yes the difference in tax liability is massive...but mainly because in option 1 the individual owns the property, in option 2 a company does. If at some point further down the line the individual wants to get their hands on the property (or cash from selling it), they're likely going to pay a huge chunk in tax then. Ie it's predominantly delaying rather than saving tax.

Also, who's to say that the recently introduced rules restricting BTL mortgage interest tax relief for higher earners won't be ported across to Ltd Cos? There's a reasonable expectation by many on here that public sector IR35 changes were used as a "test" before pushing into the private sector too...does the same logic not hold for interest restriction rules? Who knows, but it's not a crazy thought.

Plus you mention stamp duty, do be aware that's any time the asset is "sold". So as an example, you go for this plan now, a Ltd Co buys several BTL properties. Then in a year or two, the chancellor changes the rules to clobber Ltd Co BTL companies. What's your next move? Reluctantly accept it? Or then transfer the properties into your personal name (not only then incurring most of the personal tax you delayed at the outset, but also stamp duty again)?

I'm not saying it's definitely a bad idea, but do ensure you consider the cons as well as the pros before jumping in head first.

[MarillionFan]

Wasn't that the conclusion every time it's mentioned here?

As may be. But as Chimp kicked one off I'm waiting for an answer for him hopefully with some real world examples.

Methinks there is a good pension opportunity here. I notice your input previously on other threads has been to tulip on the idea initially before spouting some nonsence about accountants. Looking for a real player here thanks NLUK.

[northernladuk]

So one mistake I made in
My calculations yesterday was with SDLT. I was under the impression LTD companies did not pay the extra 3% but found that is not the case.

So the main benefit is just around the tax.

Wasn't that the conclusion every time it's mentioned here?

[MarillionFan]

So one mistake I made in
My calculations yesterday was with SDLT. I was under the impression LTD companies did not pay the extra 3% but found that is not the case.

So the main benefit is just around the tax.

[northernladuk]

They are just a broker and seem to be keeping the lenders pretty close to their chest. You can only imagine there are more they don't deal with as well.

[MarillionFan]

A 1/3 of companies are now offering loans to SPVS

Here's the list

Limited Company Buy to Let Mortgage Rates | Mortgages for Business

These are quite good loans to be honest.

Now setting up a new SPV Ltd, still requires that the Director gives a personal loan, plus they will still look at your income. So not sure if any Contractors have done this versus Permies with a decent income.

Think this is now the way forward in a number of ways.