Company Buying Office Premises

[podge]

Hi there

I set up my company 10 years ago this year and up until now have rented offices - 4-9 in the first place and coming to the end of 4-9 in the current place.

As I'm now at the end of the second 4-9, I want to explore the purchase option. I'd love to be in a position to purchase offices personally and lease them back to the company, but unfortunately personal circumstances dictate otherwise.

I therefore have some (probably rather naive) questions regarding the company purchasing the offices:

Firstly, Taxation. Is stamp duty payable? Likewise VAT ? If so, is the VAT reclaimable (presumably not and only on goods for resale) ? Is there any advantage having a shell company purchasing the property and leasing it ?

Secondly, Financing. The company will need a mortgage. We have been with the same bank (NIB) for the last 10 years but we've had no relationship with them. We've never had an overdraft / borrowings so we never got to know them at all. Presumably they should be my first port of call for a mortgage. What should I do - arrange an initial chat and bring along a set of our last audited accounts ? On what basis are they likely to offer a mortgage (i.e. you know the way for personal mortgages the banks supposedly use 3.5 times gross income) ? What is the max % they will offer ? What sort of term ? Will they want a committment from me signed in blood ?

I'd be grateful if some of you people could offer any insights on this.

Thanks
Podge

 

[Purple]

Call NIB and arrange a (free) meeting with their business advisor. He or she should be able to answer all of the above questions. You can then repost here to check the specific answers given.

 

[stuart]

As purple stated the bank should be bale to help with some info but nothing with regards to the non-financing issues

There will be stamp duty and it will be 9%
There quite possibly could be VAT involved in the purchase which depending on your/your companies VAT registration status may be reclaimable

Basically, if you charge VAT on you services then you can reclaim the VAT on the purchase, if you don't you can't (there are exceptions)

With respect to purchasing personally and leasing back to the company that in cases is the most favourable option but not always
You should check if the bank would be willing to let you go that route and then look into the pros and cons of how it suits your situation

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[Brendan Burgess]

podge

One of the most frequently asked questions of tax advisors is: "I have a company which owns a property. How do I get it out of the company without the double tax hit?". And the answer always is: "Why on earth did you buy it through the company in the first place?". You really must make every effort to buy it personally and rent it to the company.

If you have a profitable company and some equity in your home, you should be able to get the deposit by releasing equity and the bank should lend you the balance on an interest only basis.

Stuart, I can't think of any situation where there is an advantage in the company buying the property. Can you supply a few examples.

If he buys the property and reclaims VAT, would he have to charge VAT on the eventual sale of the property? So while it might be a cash flow advantage, it doesn't sound like a good idea to me. If there is VAT on the purchase of the property, he could register for VAT personally, and reclaim it.

Brendan

 

[stuart]

Stuart, I can't think of any situation where there is an advantage in the company buying the property. Can you supply a few examples.
If he buys the property and reclaims VAT, would he have to charge VAT on the eventual sale of the property? So while it might be a cash flow advantage, it doesn't sound like a good idea to me. If there is VAT on the purchase of the property, he could register for VAT personally, and reclaim it.

Property, VAT and taxation are complicated in the simplest of situations

A simple example of how if he bought the property in the company it could be advantageous
If Podge was to purchase in the company and reclaim any VAT paid it would be a cash flow advantage as you said
And yes there would possibly have to be VAT on the sale of the property
But if it was a simple straight forward office type property then more than likely the next purchaser will be able to reclaim any VAT so VAT on resale should not be an issue

But if Podge was to purchase the property in his name and he owned other properties there could be VAT issues when he goes to rent the property to the company, if he was to reclaim VAT on the purchase

Also there is a possibility that the company could be sold rather than the company and then the next purchaser would be avoiding having to pay stamp duty on acquiring the property (at 9%)

As I did state above the personal route is the default answer I always give to anyone thinking of purchasing a property for their own business but stamp duty issues, VAT issues, future business plans and personal circumstances need to be considered

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