Buying a commercial Property - through ltd or not?

[NorthWestPerm2Contr]

An immediate relative is approaching retirement and I am planning to purchase a commercial property from them at the start of 2015.

The commercial property currently has 1 flat on the top floor, I am planning to extend the property at the back and use some of the downstairs to create 4 or possibly 5 flats. Have arranged for an architect to start on this project and so far the council is ok in principle with it.

I have looked online and asked the accountant, but there seems no clear answer on the issue. Taking into account that if this project is successful then I will likely be embarking on anther, surely it makes sense to purchase through ltd company?

#Confusion

[jamesbrown]

Are you running a contractor business or a property investment business? If the latter, then start a property investment business. I don't see how you can combine the two (sensibly). I've seen quite a few similar questions on the same theme around here (whether for commercial property, residential property or any other type of investment business), and it always strikes me as nuts that someone would try to operate two fundamentally different things through one company. Of course, if you were talking about buying commercial property for use by YourCo, that would be different.

[Alan @ BroomeAffinity]

The simple answer is there's no simple answer. Depends on your funding requirements, tax position, vat position among other things. My preference would be to keep it away from your contracting company. Have you considered an SPV (special purpose vehicle) company for this?

[NorthWestPerm2Contr]

The simple answer is there's no simple answer. Depends on your funding requirements, tax position, vat position among other things. My preference would be to keep it away from your contracting company. Have you considered an SPV (special purpose vehicle) company for this?

Seems a minefield, can you please expand?

The aim is to have 5 flats bringing in aprox £500/month each + an additional £500 from the shop for a total income of aprox £3000/month. It is likely to start turning over profit pretty quickly so I can see myself quickly going into the 40% bracket? Or will that not matter as I can decrease my Dividends accordingly.....?

Also what do you mean by funding requirements, tax position, vat position? I spoke to mortgage adviser and they said I could get mortgage either through the company or personally without a problem.

[Alan @ BroomeAffinity]

In thinking about how you fund your deposit. If you take a divi from your contracting company, then you would almost certainly have to pay higher rate tax. You could avoid this by creating an SPV, which would have shares in the ConCo. A special divi can then be declared to transfer funds into SPV. There wouldn't be higher rate tax on this. In addition you could avoid (or at least defer) higher rate tax in the property profits by keeping them in SPV as opposed to divi-ing them out. Takes a wee bit of work and planning but in many circumstances it can work out well.

[jmo21]

I don't see how you can combine the two (sensibly).

My preference would be to keep it away from your contracting company.

Why though?

Is it simply if one side fails then its in a separate company and won't bring the others down?

[Alan @ BroomeAffinity]

Why though?

Is it simply if one side fails then its in a separate company and won't bring the others down?

Pretty much. But there are also complications around VAT - particularly the FRS.

[NorthWestPerm2Contr]

Pretty much. But there are also complications around VAT - particularly the FRS.

I see what you are saying.

Thanks for this.

[Alan @ BroomeAffinity]

No probs. PM me if you need anything more specific. Happy to talk through process with you.

[jamesbrown]

Pretty much. But there are also complications around VAT - particularly the FRS.

What about being classed as a close investment company (and resulting higher CT)? Insurances? Standard industry code (I agree on FRS too)? Stamp duty? Sometimes a little knowledge is dangerous - I'm certainly no expert on this - but it sounds like a completely flawed concept that could have a whole host of implications. These are two completely different businesses that need to be separated IMHO, as you rightly indicate.