Investing in Property - Using the Company/Director Status

B

BobbyFowler

Registered User
Messages
328
I've got my own Ltd Company. The two directors are myself and my partner. It's just the two of us in the business. We're thinking of investing in a property and I'm wondering if there's any advantages of buying a residential property through the company, taking into account that we're the sole directors.
 
Buying the property within the Co. means that any growth is subject to Capital Gains Tax and when you want to extract the value from the Co. for your personal benefit (I assume you will want to eventually), there is further Income Tax.
Would it not be better to buy the property personally and thus any gain in only subject to CGT. The fact that you are both Co. Directors would allow you to finance the purchase through say a Pension Mortgage. In this way:
  • You get an "interest only" loan (hopefully the rent covers the interest)
  • The Co. pays into a pension plan for you both (cost is allowed as a trading expense)
  • You repay the loan in one go at retirement from the tax-free lump sum coming from the pension plan.
The advantages of this approach are:
  • The Co pays the capital cost of the property (i.e. the pension contributions)
  • There is no ongoing cost to the Directors personally (assuming rent covers interest)
  • There is no tax cost to the Directors in respect of Co contributions to a pension plan
  • The growth in value on the property is in the hands of the Directors and only subject to to one tax (20% CGT).
 
Thanks for that. I'd heard of the Pension Mortgage Idea but hadn't really looked into it. At the moment I have a Company Pension Scheme set up with Quinn Life. In total I've about 15K in Pension Funds. I've got about 30K personal savings, as does my partner. We could put this into the company and use it to fund the purchase of any property if that's the way to set this up? Is it best to talk to a Tax Advisor at this stage.
 
in exact same situation as you. looking into the whole thing at the moment. whoever you do your business banking with may give you advice. my bank have offered me a free consultation with an accountant who will advise me how to extract funds from the company in a tax efficient manner. You seem to be further along the road of thinking of your pension though!!! If your business is property related maybe you should think about investing in an asset class that is not in the same area (to diversify risk). if not then it is probably the best idea. hope you get on well. fair play for taking the initial risk. its not easy.
 
Also bear in mind that a company will have a surcharge on any rental income undistributed as the company will be a close company.

Unless there are significant cash reserves in the company it is unlikely that buying the property in the company will be the preferred route from a tax point of view.

Note some US books do suggest buying property in a company, but this is becausethey have different tax rules.
 
The thing is that there aren't substantial cash reserves in the company. I've bought my own house and money I take out of the company I just knock off the existing mortgage. So I've a house worth 470K on which I owe 295K. There's about 25K in the Company A/C at the moment, of which I'm owed about 15K.
 
money man said:
whoever you do your business banking with may give you advice. my bank have offered me a free consultation with an accountant who will advise me how to extract funds from the company in a tax efficient manner.
Click to expand...

Never, ever depend on your bank for accountancy or tax advice. The banks in this country have a history as long as their collective arm in giving bad tax advice to customers. Sometimes this advice has been so bad, it has involved serious breaches of the law and caused financial ruin for the banks' customers. A number of people have attempted to sue banks for giving bad tax advice and the banks have successfully defended these cases on the basis that they are not specialised tax advisors and should not have been relied upon as such.
 
money man said:
whoever you do your business banking with may give you advice. my bank have offered me a free consultation with an accountant who will advise me how to extract funds from the company in a tax efficient manner.
Click to expand...

Never, ever depend on your bank for accountancy or tax advice. The banks in this country have a history as long as their collective arm in giving bad tax advice to customers. Sometimes this advice has been so bad, it has involved serious breaches of the law and caused financial ruin for the banks' customers. A number of people have attempted to sue banks for giving bad tax advice and the banks have successfully defended these cases on the basis that they are not tax advisors and their advice should not have been relied upon as if it had come from a specialist tax advisor.
 
As i say they offered me a consultation with an accountant ( of which they gave me a list of locally )who could advise me. i wouldnt ask the bank for advice as they will just push their own products and are not in a position to advise me in relation to tax matters.
 
Hi Money man,

I'm in a similar situation and was wondering if you've any follow-up info on this subject?

I'm wondering what happens when/if one stops being a proprietary director or more to the point if one returns to full-time PAYE employment and income to the company dries up?

Thanks,

noob.
 
BobbyFowler said:
I've got my own Ltd Company. The two directors are myself and my partner. It's just the two of us in the business. We're thinking of investing in a property and I'm wondering if there's any advantages of buying a residential property through the company, taking into account that we're the sole directors.
Click to expand...

In short in every tax lecture I have sat in over the years the conclusion was that it is tax madness to put an appreciating capital assets in a limited company for the following reasons;

1.CGT on diposal may apply leaving the net of tax cash trapped in the co even for dividend out subject to marginal rate income tax or a liquidation with a further hit to CGT
2.If a loss arise it will be unavailable for us against your personal capital gains
3.Possible tax rate of 45% 25% normal rate plus a further 20% if income not distributed
4.Admin costs of having a limited company

These tax costs will far outway any possible non tax advantages
 
It may be more tax efficient to set-up a Self-Administered Pension Plan and use that to buy the proeprty rather than to use a pension mortgage.

The main advantages of self-administered route are:

  • No CGT on disposal of property
  • No income tax on rental income generated by property
  • Full tax relief on capital AND interest repayments
 
CapitalCCC said:
It may be more tax efficient to set-up a Self-Administered Pension Plan and use that to buy the proeprty rather than to use a pension mortgage.

The main advantages of self-administered route are:
  • No CGT on disposal of property
  • No income tax on rental income generated by property
  • Full tax relief on capital AND interest repayments
Click to expand...

True, I am not 100% sure on SAPS but I know fr sure there is a lot of restrictions inherent in the conditions in order to qualify for the tax relief
 
There is really just one condition:

  • The director (including any connected parties of the director such as partner, children etc...) and the company may under no circumstances use the property itself - so if it is a true "investment proeprty" then absolutely no problem, if the director or company want to use property for their own use, then forget it
 
CapitalCCC said:
There is really just one condition:
  • The director (including any connected parties of the director such as partner, children etc...) and the company may under no circumstances use the property itself - so if it is a true "investment proeprty" then absolutely no problem, if the director or company want to use property for their own use, then forget it
Click to expand...

Yeah that rings a bell in my head
 
So - once the property is for investment - there are no restrictions.
 
What about the SAPS buying an investment property that is currently owned by the proprietary director? The existing property is a pure investment property and would remain so. The Prop. dirs. involvement would change from being the direct owner to being the owner via a pension.

Is such a thing possible? Where, besides here :), can one get the specifics (in laymans terms if possible of a SAPS (pitfalls etc. when company folds) - pensions board site?

Thanks,

Noobie
 
The SSAS cannot buy assets from or sell assets to "connected parties" - this includes the director of the sponsoring company, partners & family etc of the director, the company itself, any other companies in which the company director is also a shareholder.

PB would not really give much info about a SSAS.

You would probably need to speak to a SSAS provider (such as the company that I work for) - but bear in mind that you would probably be talking to someone that wants you to set one up!
 
You must log in or register to reply here.
Back
Top