Reply to: UK LTD owns overseas property, can I use company profit to invest in property

[Jessica@WhiteFieldTax]

I would seek the counsel of a Chartered Accountant and specialist tax advisor.

+1

[Wanderer]

And in my case, the company offers IT and HR Consultancy services (my wife and I). The property was purely just for investment and a way to spend some of the built up profit on the business.

As Pondlife, DirtyDog and others point out the exemption only applies when the "sole activity is holding that property for occupation and/or letting"

In your case, owning the property is NOT your company's sole activity so you will have to pay tax on the Benefit In Kind. You should get professional advice straight away otherwise you may be liable for a huge tax bill for the BIK, plus interest and penalties when you inevitably get investigated at some time in the future...

And your company making an interest free or non-commercial rate loan to another company that you are connected with in order to buy the property won't wash either.

[Scruff]

The issue that you have here is that the Company's trading operation is that of providing services, yet it has purchased fixed property as an asset using the retained income from trading, for the sole benefit of the Directors and their family. In my opinion you have breached your Fiduciary capacity?

You are definitely going to be in trouble should HMRC investigate the company or your personal tax affairs.

I would seek the counsel of a Chartered Accountant and specialist tax advisor.

Ya sockie

[DirtyDog]

It avoids the long Spanish inheritance tax issues associated with any property owned by an individual. And in the UK all you are doing is passing over Shares to your kids, not transferring assets.

So how do you get the company valued for probate without the outright ownership of the property not showing up as something which makes the company valuable?

[DirtyDog]

And in my case, the company offers IT and HR Consultancy services (my wife and I). The property was purely just for investment and a way to spend some of the built up profit on the business.

So how does that square with S100A (2):

The company is “the holding company of the property” when—
(a) it owns a relevant interest in the property,
(b) its main or only asset is that interest, and
(c) the only activities undertaken by it are ones that are incidental to its ownership of that interest.

[contractmonkey]

I hear the sound of a massive clanger dropping!

And in my case, the company offers IT and HR Consultancy services (my wife and I). The property was purely just for investment and a way to spend some of the built up profit on the business.

[contractmonkey]

Go on - explain that one. How does giving a company with significant assets to your children avoid inheritance tax any more than leaving the asset itself?

It avoids the long Spanish inheritance tax issues associated with any property owned by an individual. And in the UK all you are doing is passing over Shares to your kids, not transferring assets.

[stek]

That's how I would interpret it - if the company's sole activity is owning property which is occupied and / or rented, and the directors use the property, then there is no BIK to pay. If the company isn't solely a property company OR the property is not occupied or rented, then there would be a BIK to pay.

The legislative change seems to imply that the intention was that if you own a company which rents out properties, then the chances of a director actually being able to use one for any decent time would be slim, therefore simplify the system so that you don't have to declare it as a benefit. This doesn't seem to apply in this case, though.

I hear the sound of a massive clanger dropping!

[DirtyDog]

It mentions and/or letting. If you are doing neither then surely there is your answer and seems the OP states..

then BIK would apply surely?

That's how I would interpret it - if the company's sole activity is owning property which is occupied and / or rented, and the directors use the property, then there is no BIK to pay. If the company isn't solely a property company OR the property is not occupied or rented, then there would be a BIK to pay.

The legislative change seems to imply that the intention was that if you own a company which rents out properties, then the chances of a director actually being able to use one for any decent time would be slim, therefore simplify the system so that you don't have to declare it as a benefit. This doesn't seem to apply in this case, though.

[DirtyDog]

There is no BIK so not declarable. I did a lot of background work on this before it was purchased. The only hit will be CGT once it's sold. Bens of doing it through the company:

1 - Avoids inheritance tax - Company is left to kids

Go on - explain that one. How does giving a company with significant assets to your children avoid inheritance tax any more than leaving the asset itself?

[northernladuk]

That was my initial thought but a bit of googling suggests there's no BIK

HMRC linky

1. At Budget 2007, the Government announced its intention to bring forward legislation in Finance Bill 2008 which will ensure that individuals who have bought or will buy a home abroad, will not face a benefit in kind tax charge for any private use of the property if purchased through a company.

Any accountants care to comment?

This would suggest to me it means any private use above and beyond any business use. Like a company car is mainly company but can be used privately. Reading into just the snippet you have posted I would say there is a fundamental problem that this is purely a private residency with no business use at all.

More research would be needed before taking that quote as read IMO. That alone appears to open the door to all kinds of abuse that will be difficult to track if the money doesn't land back in a UK bank.

Using company money to improve it just seems fundamentally wrong.

EDIT : Just read this

6. The exemption will only apply to the benefit in kind charge. It will apply where an overseas property is owned by a company that is owned by individuals and whose sole activity is holding that property for occupation and/or letting. It will have retrospective effect.

It mentions and/or letting. If you are doing neither then surely there is your answer and seems the OP states..

It generates no profit for the business as it is only used by the Directors.

then BIK would apply surely?

[Jeebo72]

There is no BIK so not declarable. I did a lot of background work on this before it was purchased. The only hit will be CGT once it's sold. Bens of doing it through the company:

1 - Avoids inheritance tax - Company is left to kids
2 - Avoids personal taxation

Anyway, I didn't want this to go into the "is the right / wrong way to do this."

I Am talking to the account next week anyway and will be asking their advice then. Just curious if there were any accountants on here reading that would care to reply as I've found out previously that not accountants give quite the same advice

Remember you can also sell the shares in the company rather than the actual properties which has benefits for both buyer / seller and so can increase value of portfolio. I'm currently doing as I said above, and it works out very well...

[contractmonkey]

There is no BIK so not declarable. I did a lot of background work on this before it was purchased. The only hit will be CGT once it's sold. Bens of doing it through the company:

1 - Avoids inheritance tax - Company is left to kids
2 - Avoids personal taxation

Anyway, I didn't want this to go into the "is the right / wrong way to do this."

I Am talking to the account next week anyway and will be asking their advice then. Just curious if there were any accountants on here reading that would care to reply as I've found out previously that not accountants give quite the same advice

[stek]

Set up a property company, and transfer your property into that.

Who's property?

[Jeebo72]

I have a European (Spanish) overseas property that was purchased through my UK Ltd company. The property has no mortgage.

It generates no profit for the business as it is only used by the Directors. My question is this:

Can I use company profits to improve the property? Examples of this would be to install heating for the pool, build new walls where fencing is currently in place. Possible extension of the property, purchasing additional adjoining land.

Set up a property company, and transfer your property into that. Any future dev or property purchases can be done via a loan from one company to the other. And at 0%. No matter what anyone on here says. Don't listen to anyone on here (including me, check with your proper accountant not an IT contractor account manager). 99.9% on this forum are IT geeks obsessed by IR35 and being "directors" rather than what they are: code monkeys with too much money for code monkeys.