Buying property using limited company account

[dmuk]

I am trying to determine the tax implications of purchasing a property through a limited company. The limited company has cash generated from consulting activity. The property would be rented out; and presumably in the name of the limited company.

I want to know whether you can utilise the business cash account to make the property purchase?

I understand there are various rental income and capital gains considerations. I am more interested in using the limited company’s cash to make purchase.

Corporation tax will be paid as normal on consulting income and rental income.

I have searched the forum and google but not totally sure what I need to search for.

[Martin at NixonWilliams]

I am trying to determine the tax implications of purchasing a property through a limited company. The limited company has cash generated from consulting activity. The property would be rented out; and presumably in the name of the limited company.

I want to know whether you can utilise the business cash account to make the property purchase?

I understand there are various rental income and capital gains considerations. I am more interested in using the limited company’s cash to make purchase.

Corporation tax will be paid as normal on consulting income and rental income.

I have searched the forum and google but not totally sure what I need to search for.

Hi dmuk,

The company will pay corporation tax on any rental profits.

The company will also pay corporation tax on any gain made when the property is sold. An inflationary allowance (indexation allowance) will be available and should reduce the taxable gain.

Note that you could lose your entitlement to entrepreneurs relief if the company uses its cash reserves to make investments - see the link below:

CG64090 - Entrepreneurs? Relief: trading company and holding company of a trading group - the meaning of "substantial"

A way around the above is to sell the property more than twelve months in advance of stopping trading through the company, although this is easier said than done.

I would advise you only to make a purchase out of retained earnings, i.e. do not use cash that is set aside for payments of VAT, corporation tax etc. - I have seen this go disastrously in the past.

There's more to consider, but these are the basics.

I hope this helps.

Martin

[ASB]

Yes you can buy the property through the company.

Obviously there is no cgt relief on sale in current rules. Often it is not generally thought of as a good idea, but it depends very much on your individual circumstances and longer term objectives.

There are a number of books on the subject.

ouple of links

http://www.nunn-hayward.com/download...-for-GX-CA.pdf
Buying property through limited company | AccountingWEB

It's a specialised area.

My research has always led me to be more comfortable owning the property personally.

edit: https://www.google.co.uk/webhp?sourc...ntractoruk.com

[dmuk]

Thanks for the responses.

I am only looking at utilising retained earnings.

I have looked at previous threads but they don’t seem to explicitly talk about using retained earnings to make the purchase.

I will check out the links provided.

The main question now is calculating using the retained earnings and investing in the limited company name; versus withdrawing the funds (paying corporate tax) and investing in my own name.

[JRCT]

Thanks for the responses.

I am only looking at utilising retained earnings.

I have looked at previous threads but they don’t seem to explicitly talk about using retained earnings to make the purchase.

I will check out the links provided.

The main question now is calculating using the retained earnings and investing in the limited company name; versus withdrawing the funds (paying corporate tax) and investing in my own name.

Bizarrely we both asked the same question at the same time.

I too am in this situation. Shall I set up a second LTD to buy a btl or do it personally. I either pay CT on the profit in the LTD or it takes me into the higher rate tax bracket, personally.

[BolshieBastard]

I am trying to determine the tax implications of purchasing a property through a limited company. The limited company has cash generated from consulting activity. The property would be rented out; and presumably in the name of the limited company.

I love the hidden connotations of that bit.

[eek]

Thanks for the responses.

I am only looking at utilising retained earnings.

I have looked at previous threads but they don’t seem to explicitly talk about using retained earnings to make the purchase.

I will check out the links provided.

The main question now is calculating using the retained earnings and investing in the limited company name;

wasn't the use of a company to sell property seen as a tax dodge regarding stamp duty a while back and tax rules changed to discourage it?

[ChimpMaster]

My understanding is that the OP would buy the BTL using cash only, and hence will not need financing, so that avoids any potential issues with lenders.

You could buy a BTL in your IT company but eventually you will have to sell it (to yourself or otherwise) and pay appropriate taxes. And buying cash will allow you to negotiate a better price in some cases.

I can see the point, in that if you own the property personally, you are liable to higher rate tax if your salary/dividends/other earnings already push you into that bracket. It's a nice simple way of managing your tax liability. We played out this scenario a while back and had even set up a separate Ltd to manage BTLs from, but we never used it - one of the issues being the Associated Companies rule (I'll let you read up on it rather than explain here).

[Jessica@WhiteFieldTax]

Its been asked before, and will be in the future.

In principle the use of retained earnings is fine (and based on OP facts given).

I can see why its attractive, however the advice is nearly always to draw a dividend, take the hit on higher rate tax, and buy personally.

Why? (a) Long term CGT is better on personal rates than corporate rates (b) doesn't cause potential ER problems down the line (c) keeps investment assets away from trading assets in the event of IR35 claim, a large corporate bad debt or similar.

The rights and wrongs can be debated either way, but for the most part accountants and tax bods don't tend to own properties through companies, be it their trading company or a property company.

If the higher rate tax hit on the dividend really scares you, then a possibility exists of buying the property in a LLP with company and you being partners, company contributing capital for deposit/purchase from retained earnings and a partnership agreement that lets you personally benefit from capital growth. But you need sit down advice from an accountant or lawyer on this, and go into it fully researched and with your eyes open. It's not as straight forward and, as with everything, there are trade offs of complexity and HMRC scrutiny v the tax saving.

[acted]

A lot of people on this forum critique buying a property in a limited company. However I believe there are merits for people who are looking to build a property portfolio and regularly earn a lot of money through high contract rates.