Reply to: MyCo buying %age in house

[Wanderer]

Can't you use your SIPP in someway (as an investment)?

Yeah great idea but, if it worked that way everyone would buy a holiday house using a SIPP, rent it out and take holidays in it whenever they wanted.

So, no. That ain't gonna work....

[Greg@CapitalCity]

Foir that reason letting the kids by 100% and giving them a secured loan is more preferable.

Not to mention stamp duty land tax savings as well.

[Jessica@WhiteFieldTax]

Don't all Director's loan proposals fail because of the 25% corp tax payable on loans outstanding 9 months + 1 day(?) after company year end, even if 4% interest is paid?

They don't fail as such, but for a 40% taxpayer the 25% CT equates to the personal tax on a dividend, so all other things being equal there is merit in just taking the hit as a dividend - so long as income doesn't go into the over £100k zone for allowance claw back or the 50% band. If nothing else the BIK is then saved.

[Jessica@WhiteFieldTax]

I think you mean PRR - Private Residence Relief
For that, doesn't the OP have to live in the property himself?
Therefore, the only way for OP to go is to lend the daughter the money, but the daughter buys the property. But this may not be possible if the daughter has low income, or poor credit rating.

What about if OP buys it, then transfers to daughter not too long after the purchase. The value in this case would not have changed enough to cause more CGT than the £10,600 personal allowance. So would not lose out on the transfer. But would have to pay extra legal fees, and not sure what happens to mortgage.

Principle Private Residence Relief = PPR

It can only be claimed by the person whose home it is, so if parents take a 25% share in childrens home with children having over 75%, on a subsequent disposal the gain will be split 25:75 with the 25% attributable to the parents being taxable.

I can't see the merit in OP buying the property and transferring it to children soon after. Why not just give them the funds to buy it / place deposit? A subsequent transfer merely complicates things. But you are correct there would be little CGT in those circumstances, but a PET (potentially exempt transfer) for IHT with 7 year taper - basically IHT chargeable if donor dies within 7 years.

Foir that reason letting the kids by 100% and giving them a secured loan is more preferable.

[captainham]

Is the directors loan treated as an expense for the company?
So if the company made £100K profit in the year. Then there would be a 20K CT bill.
But if the company made a loan of 50K, then the profit would be 50K, so a 10K CT bill, plus 25% of loan is 12.5K, 22.5K total CT bill. Therefore, its effectively only 5% more than the normal CT bill.

Have a look here and see if this explains anything: http://www.intouchaccounting.com/ass...ctors_loan.pdf

[northernladuk]

Is the directors loan treated as an expense for the company?
So if the company made £100K profit in the year. Then there would be a 20K CT bill.
But if the company made a loan of 50K, then the profit would be 50K, so a 10K CT bill, plus 25% of loan is 12.5K, 22.5K total CT bill. Therefore, its effectively only 5% more than the normal CT bill.

There is a slight flaw in your idea... It is a loan. It has to be paid back. Factor that back in...

But that isn't the real answer to your question, just food for thought.

[lithium147]

But you get the 25% back once the loan is repaid, so its not so bad.

Is the directors loan treated as an expense for the company?
So if the company made £100K profit in the year. Then there would be a 20K CT bill.
But if the company made a loan of 50K, then the profit would be 50K, so a 10K CT bill, plus 25% of loan is 12.5K, 22.5K total CT bill. Therefore, its effectively only 5% more than the normal CT bill.

[lithium147]

Don't all Director's loan proposals fail because of the 25% corp tax payable on loans outstanding 9 months + 1 day(?) after company year end, even if 4% interest is paid?

But you get the 25% back once the loan is repaid, so its not so bad.

[speling bee]

Don't all Director's loan proposals fail because of the 25% corp tax payable on loans outstanding 9 months + 1 day(?) after company year end, even if 4% interest is paid?

[lithium147]

Still screws up PPR. Given most people are expecting capital growth from their home, it's not a good plan IMV.

Loan her the money and take a second charge over the house of necessary.

I think you mean PRR - Private Residence Relief
For that, doesn't the OP have to live in the property himself?
Therefore, the only way for OP to go is to lend the daughter the money, but the daughter buys the property. But this may not be possible if the daughter has low income, or poor credit rating.

What about if OP buys it, then transfers to daughter not too long after the purchase. The value in this case would not have changed enough to cause more CGT than the £10,600 personal allowance. So would not lose out on the transfer. But would have to pay extra legal fees, and not sure what happens to mortgage.

[Jessica@WhiteFieldTax]

Can't you use your SIPP in someway (as an investment)?

The rules on whether you can invest in residential property with a SIPP seem to change weekly, AFAIR you can't, but Im willing to be corrected.

Even then I would avoid it, again PPR problems, plus the long term nature of SIPP could render it difficult to disinvest in due course.

[Jessica@WhiteFieldTax]

What about if the OP loans himself the money, and then buys the propert in conjunction with the daughter?
Perhaps they coud have a 50% ownership each (or 33% each if including hubbie).
So there would be 2 (or 3) names of the property deed.
What would be pro's/con's of this approach?

Still screws up PPR. Given most people are expecting capital growth from their home, it's not a good plan IMV.

Loan her the money and take a second charge over the house of necessary.

[MarillionFan]

Can't you use your SIPP in someway (as an investment)?

[lithium147]

What about if the OP loans himself the money, and then buys the propert in conjunction with the daughter?
Perhaps they coud have a 50% ownership each (or 33% each if including hubbie).
So there would be 2 (or 3) names of the property deed.
What would be pro's/con's of this approach?

[Notascooby]

Why not get yourself a Buy-2-Let mortgage then let it to your daughter?

You could:

a) subsidise the mortgage
b) become their landord at no profit until they can afford to get their own place, you then have a nice rental property
c) some other combo

Advantage is that in the short-term you'll be in control of the house if things go worng, where you can boot him out. If all goes well then you can transfer the house to them later.