Investment Advice: Transfer Current Investment Property into New Ltd Company & Purchase Additional Investments Through Same Company?

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Peader2468

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2
Age:38
Spouse’s/Partner's age:38

Annual gross income from employment or profession: €110,000 base + c. €60,000 bonus - private sector company director

Annual gross income spouse: €28,000 - self employed / part time

Home House Value: €475,000

Home House Mortgage: €308,000 with PTSB @3.00% for next 5 years. Repayments c. €1,400 p/m

Investment Property Value €230,000

Investment Property Mortgage: €157,000 with PTSB @5.65% for next 5 years. Repayments c. €980 p/m

Investment Property Costs: Service charge, Insurance, Property Tax c. € 200 p/m

Investment Property Rental Income: €1,900 p/m

Other borrowings – car loans/personal loans etc: None

Pension Scheme:
Yes - I contribute €916 personally and my company contributes €641 p/m
Her - None

Dependants: 2x kids; 4yr and 2yrs

What specific question do you have or what issues are of concern to you?

I’ve established a new , separate business to my annual gross salary noted above and it is on track generate c €600k gross profits within 24months. I’m considering using these initial profits from this business to purchase my current personal investment property and potentially buy a second investment property.

Question 1: I want to reduce my personal outgoings each month and free up cashflow, which is why I am considering transferring my Investment property to a Ltd Company - the limited company will use its profits to clear my personal mortgage on the investment property and reduce my monthly liabilities by €980 (the investment mortgage amount). Based on the above information, we think that transferring our current investment property and buying any future investment properties via a dedicated Ltd company is the best solution for us, to minimise personal income tax and manage transfer of property to our kids in the future, but welcome any comments if others believe otherwise?

Question 2:
I want to establish a company structure from the outset that will enable my wife and I to have controlling shares over the Ltd company that holds the property investments, but have my kids named as shareholders in the company for future estate planning purposes to minimise future tax inheritance implications. Is this possible is have young kids named as shareholders or have shares held in trust?

If so, what would this shareholding structure look like?
 
There are plenty of threads already explaining why you should not own property through a company in Ireland.

In summary, the company pays tax on the rent. The company pays CGT on any capital gain.
You personally pay tax on any dividends from the company. And you pay CGT on any gain when eventually disposing of the company.

Keep it simple.

Brendan
 

Key Post: Company to hold investment properties

(This discussion took place on the old AAM in December 2000. I have reproduced it here so it can be marked as a Key Post. Tommy ============== Because it's an old post, some of the tax figures have changed and the decision is no longer as clear cut as it was. Don't make any decision until...
www.askaboutmoney.com
 
Hi Brendan,

Previous posts are noted, but my understanding is my situation is slightly different as I want to utilise the €600k within my Company A Ltd in a tax efficient manner.

My objectives are:
1) To clear the mortgage on Investment Property 1
2) Buy Investment Property 2 without a mortgage
3) Retain the properties and pass onto my kids.

The two options I considered are;

Option 1 - Retain the Investment Properties in my Name.
To achieve my objectives, I will have to extract the profits from the Company A Ltd , which will result in c. €312k in personal income taxes that will have to be paid, and I will have €288k left as cash to use. I use €157k of this cash to clear the mortgage for Investment Property 1. I will then be left with €131k in cash to buy Investment Property 2, which will be insufficient without another part mortgage.

In this option, I expect the net rental income into my hand after tax will be c €816 p/m, based on €1900 gross rent minus €200 expenses per month, remaining €1700 taxed at 52%.

Option 2 - Transfer Investment Property 1 to Company A Ltd
To achieve my objectives, I will use Company A Ltd to buy Investment Property 1 (IP1) from me and clear the mortgage:
IP1 purchased Sept 2023 for €225k. Assuming market value is €235k, there is a €10k gain. I will be personally liable for CGT at 33% = €3,300.
Stamp duty of 1%, Company A will be liable for €2350.
I estimate the total cost for Company A to buy IP1 will be €237,350. This will clear the mortgage (€157k) and release my cash equity in the property of €68k minus €3.3k for CGT.
In this option, Company A remaining profit of €362k (€600k minus IP1 costs), resulting is sufficient funds to purchase Investment Property 2 without a mortgage. I might be missing something, but this sounds like a more tax efficient option from Company A perspective, compared to Option 1?

Comparing the rental income, Option 2 does reduce the net cash income after all taxes from €816 p/m (Option 1) to c. €612 p/m (Option 2), based on the following Option 2 assumptions:
Rental Income €1900 gross rent minus €200 expenses per month, remaining €1700 taxed at 25% within the company, and a further personal income tax of 52%.
Difference being c. €200 p/m - I acknowledge there will be accountancy costs etc that Option 2 Company A will incure that will further reduce the monthly net income.

Unless you can highlight any glaring mistakes above, I'm leaning towards Option 2 for the following reasons - but welcome your comments / advice!

- Utilising Company A profits in a tax efficient manner, rather than paying €312k in tax to extract cash as in Option 1
- I can utilise remaining profits in Company A to purchase Investment Property 2. This will also generate a rental income, and when IP1 and IP2 net rental incomes are combined, they will exceed the estimated rental income of Option 1
- It will release c. €65k in cash equity from IP1, back into my pocket
- Company A will have two investment properties, mortgage free. The company will have the option to retain any profits generated to potentially buy a third and fourth property down the line - note there will be a c. 15% surcharge tax on profits if retained for over 12months.
- I also didn't mention the option of establishing a property management company to manage these properties in the future, which would open up the option to reduce the company taxes further as the prop management company would be a trading and only liable for 12.5% tax.
- As I intend to retain the properties and pass onto my kids, I do not plan on disposing and will avoid getting hit with CGT at the exit. As per my original post, I'm seeking advice on Company A structure that will have shares held in trust for the kids - they own part of the company at the time IP1 and IP2 are purchased/transferred - thus limiting their exposure to tax implications down the line.
 
Last edited:
Peader2468 said:
I want to utilise the €600k within my Company A Ltd
Click to expand...

So the first question is why have you accumulated €600k cash in Company A?

Get back onto the tax consultant or accountant who came up with this plan and ask them how to extract it in a tax efficient manner.

It's not easy, but may liquidating the company might work.

Then you will have cash - if only €300k - with which to buy properties in your own name.

Brendan
 
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