A question to accountants

[Iliketax]

Interesting point. Would be interested to hear more.

Haven’t heard that such SPV loan arrangements would be considered part of the loan charge legislation.

So anyone with such a setup should expect an APN?

Note it’s N/A to me. Just interested.

This is new legislation from 6 April 2018. It brings a new way for the employee disguised remuneration rules to apply. The normal employee rules apply if there is a connection to your employment. The new rules add to that by adding a "close companies gateway" to stop people saying that it was all because I was a shareholder and not because I was an employee. Where they apply PAYE/NIC is due. As they are a bolt-on to the employee disguised remuneration rules then the April 2019 loan charge applies. No one should expect APNs for things done before 6 April 2018.

This CCG is complicated. Way more complicated that getting into normal employee DR. You can find the new bits here: https://www.legislation.gov.uk/ukpga...raph/2/enacted

It does require (among other things):

1. There being a main purpose of avoiding tax ("Transfer the money to my personal name, paying huge income tax" - no way, too much tax)

2. Someone being an employee / director of a close company and owning 5%+ of it. Tick

3. The close company making a relevant transaction (e.g. a loan to an SPV). Tick

4. A third party (e.g. the SPV) making a relevant step (e.g. paying a sum of money to a "relevant person"). Tick - but see below why that might not create a tax charge when it is used to buy a house.

5. There being some link between the two (e.g. the loan to the SPV was used by the SPV to buy a house from a relevant person). Tick

6. The wide bit is the definition of "relevant person". This can be the individual, someone linked to them (e.g. a relative, a close company that they or a relative are shareholders in), someone chosen by the individual ("buy Fred's house", "pay John the solicitor"), or a class of person chosen by the individual or any other person if it is being done on the individual's behalf, direction or request).

Just to be really clear as I just did a very quick earlier reply. It is not the loan made by the employer to the SPV that is within the scope of the DR charge. That is the "relevant transaction". It is the relevant step (e.g. what the SPV does) that brings in the tax charge. If that is not a loan (as would be the case here) then the April 2019 loan charge does not apply. Also, there are exemptions that can stop the relevant step creating a tax charge. So, for example, if the SPV buys an asset there will normally be an exemption for that. But if it pays legal fees on the purchase then there may be no exemption so PAYE/NIC is due.

I was being a bit sarcastic when I said "Your accountant correctly forecast the April 2019 loan charge and the "close companies' gateway" part of the disguised remuneration rules". These rules were first announced in March 2016 but there was no detail for a long time. From memory, we had some draft legislation on the close companies' gateway by December 2016 but this was pants and so got pulled by the government. So it was only in September 2017 that the draft legislation got published and that then got toned down a bit. So the accountant was probably being prudent by trying not to have a loan to an SPV just in case it was caught. As it turn out, it isn't caught but it is what the SPV does that can cause the problem.

[MrButton]

If you had done that, you'd have to refinance the loan before April 2019 or face a very big tax bill. Your accountant correctly forecast the April 2019 loan charge and the "close companies' gateway" part of the disguised remuneration rules. Ask them what the lottery number are for tomorrow.

Interesting point. Would be interested to hear more.

Haven’t heard that such SPV loan arrangements would be considered part of the loan charge legislation.

So anyone with such a setup should expect an APN?

Note it’s N/A to me. Just interested.

[Alan @ BroomeAffinity]

Doesn't that still leave the investment company assets at risk in case of horrendous issue in the trading company? Eg negligence lawsuit by contracting client, PII doesn't cover for some reason. If the trading company owns the shares in the investment company, which in turn has lots of healthy assets with juicy equity, doesn't that still leave them a bit at risk?

I may be wrong, indeed we decided to basically steer well clear of this market, stick with what we know. However I'd have thought you'd want to have the investment company and assets "above" the trading one from an ownership perspective (ie investment is parent and trading is sub)? Or perhaps this risk is just considered sufficiently trivial to ignore.

Still, my overarching view for this kind of thing is generally take the tax hit and buy personally. Having said that, the numbers the OP is talking about do sound pretty huge, so I'd suggest getting proper paid professional advice rather than asking on an internet forum.

Indeed. Or that way. Which is why, like you, we don’t really get involved in this.

[Iliketax]

-Create a separate SPV, then ‘loan’ the money from the trade to the SPV.
...
Can anyone see any positives?

If you had done that, you'd have to refinance the loan before April 2019 or face a very big tax bill. Your accountant correctly forecast the April 2019 loan charge and the "close companies' gateway" part of the disguised remuneration rules. Ask them what the lottery number are for tomorrow.

[Maslins]

it's just as normal (I'd say) for the property company to be a subsidiary of the trading company.

Doesn't that still leave the investment company assets at risk in case of horrendous issue in the trading company? Eg negligence lawsuit by contracting client, PII doesn't cover for some reason. If the trading company owns the shares in the investment company, which in turn has lots of healthy assets with juicy equity, doesn't that still leave them a bit at risk?

I may be wrong, indeed we decided to basically steer well clear of this market, stick with what we know. However I'd have thought you'd want to have the investment company and assets "above" the trading one from an ownership perspective (ie investment is parent and trading is sub)? Or perhaps this risk is just considered sufficiently trivial to ignore.

Still, my overarching view for this kind of thing is generally take the tax hit and buy personally. Having said that, the numbers the OP is talking about do sound pretty huge, so I'd suggest getting proper paid professional advice rather than asking on an internet forum.

[Alan @ BroomeAffinity]

It's fairly common to hold property (or other assets) outside the trading company. Although the holding company approach isn't uncommon, it's just as normal (I'd say) for the property company to be a subsidiary of the trading company. But without knowing all the facts, I can't say whether the Holding Company approach is better or worse. Certainly the set up costs are a bit eye-watering.

[northernladuk]

Loads of threads about LTD's and BTL's here.

I believe a very brief summary in general is not to put it through the company. That may change with the details of each situation.

https://www.bing.com/search?q=BTL+co...E0&adlt=strict

[ceeme123]

I have a trading company which is LTD.
Two years ago, I saved up enough money in order to buy a BTL. When looking at the best options on how to purchase the BTL there were a few different ways my accountants explained how we could do this:
-Transfer the money to my personal name, paying huge income tax (and not being able to offset interest).
-Create a separate SPV, then ‘loan’ the money from the trade to the SPV.
-Or, what my accountants pushed; set up a holding company where I transfer the money from the trade, to the holding company, and then from the holding company to the SPV. The holding company is the sole shareholder of the Trade and Hold Co.*

The trouble I have with this is:
-This is not common practice; I do not know anyone else who has this set up.
-It cost me*£5,000 for this set up and now I am paying for accountancy for 3 companies rather than 2.
-It is much harder to get mortgages for a 2 layered SPV (essentially a Ltd owned by another Ltd)
-The main problem is; my credit limit for my trade has now been wiped out*because all my profits get paid into the holding company, therefore I cannot grow my business.*

There are 4 negatives to what my accountants got me to do. Can anyone see any positives? Does anyone have any comments?

My trade turnover £1m+ per year. The BTL I purchased was £550k. I am currently buying another for £750k.*