Buying Property Through Limited Company

Discussion in 'UK Finance' started by PhilP, Sep 24, 2003.

  1. PhilP

    PhilP Guest

    I'm thinking of buying a house throught a limited company as a
    long-term investment (probably to supplement my pension when I retire
    in 20 or so years!). As far as I can tell the advantages and
    disadvantages are as follows:

    Advantages

    1. Only pay corporation tax which is less than personal tax
    2. It separates the 'business' from my personal finances
    3. If more properties are purchased and income increases then a
    corporate structure would look more professional and make the finances
    easier to manage.



    Disadvantages

    1. Administration Burden - filing accounts etc.
    2. No capital gains allowances when coming to sell the property
    3. Getting money from the property when selling will be complicated
    (but this is not the intention!)
    4. Interest rates not quite so favourable


    Has anybody got any other thoughts? Also Can the company register for
    VAT and get this back on business expenses? I know VAT is not charged
    on rent.

    Cheers,

    Phil
     
    PhilP, Sep 24, 2003
    #1
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  2. PhilP wrote:

    > I'm thinking of buying a house throught a limited company as a
    > long-term investment (probably to supplement my pension when I retire
    > in 20 or so years!). As far as I can tell the advantages and
    > disadvantages are as follows:
    >
    > Advantages
    >
    > 1. Only pay corporation tax which is less than personal tax


    This is often true, but not in all circumstances.
    It is also really the only advantage.

    > 2. It separates the 'business' from my personal finances


    Bogus. You can run a separate business without it having to be
    a company.

    > 3. If more properties are purchased and income increases then a
    > corporate structure would look more professional


    To whom? And what would the advantage of that be?

    > and make the finances easier to manage.


    No.

    > Disadvantages
    >
    > 1. Administration Burden - filing accounts etc.


    Correct.

    > 2. No capital gains allowances when coming to sell the property


    You don't get those for investment property anyway, company or no,
    unless you use it as your home.

    > 3. Getting money from the property when selling will be complicated


    How so?

    > (but this is not the intention!)


    Fair enough.

    > 4. Interest rates not quite so favourable


    There are probably ways around this, such as owning the properties
    personally on paper but vesting beneficial ownership in the company.

    > Has anybody got any other thoughts? Also Can the company register for
    > VAT and get this back on business expenses? I know VAT is not charged
    > on rent.


    I gather you cannot register for VAT unless you make VAT-chargeable
    supplies.
     
    Ronald Raygun, Sep 24, 2003
    #2
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  3. PhilP

    David Floyd Guest

    In message of Wed, 24 Sep 2003, Ronald Raygun writes
    >PhilP wrote:
    >
    >
    >> Disadvantages
    >>
    >> 1. Administration Burden - filing accounts etc.

    >
    >Correct.
    >

    Hardly a burden though.

    >> 2. No capital gains allowances when coming to sell the property

    >
    >You don't get those for investment property anyway, company or no,
    >unless you use it as your home.
    >


    How do you figure that out. When not a company you still get £7700 Cap
    Gain at 0%, investment property or not.

    DF
     
    David Floyd, Sep 24, 2003
    #3
  4. David Floyd wrote:

    > In message of Wed, 24 Sep 2003, Ronald Raygun writes
    >>PhilP wrote:
    >>>
    >>> 2. No capital gains allowances when coming to sell the property

    >>
    >>You don't get those for investment property anyway, company or no,
    >>unless you use it as your home.

    >
    > How do you figure that out. When not a company you still get £7700 Cap
    > Gain at 0%, investment property or not.


    Oops. Sorry, I thought he meant PRR, my mistake.
     
    Ronald Raygun, Sep 24, 2003
    #4
  5. In article <>, PhilP
    <> writes
    >I'm thinking of buying a house throught a limited company as a
    >long-term investment (probably to supplement my pension when I retire
    >in 20 or so years!). As far as I can tell the advantages and
    >disadvantages are as follows:
    >
    >Advantages
    >
    >1. Only pay corporation tax which is less than personal tax
    >2. It separates the 'business' from my personal finances
    >3. If more properties are purchased and income increases then a
    >corporate structure would look more professional and make the finances
    >easier to manage.
    >
    >
    >
    >Disadvantages
    >
    >1. Administration Burden - filing accounts etc.
    >2. No capital gains allowances when coming to sell the property
    >3. Getting money from the property when selling will be complicated
    >(but this is not the intention!)
    >4. Interest rates not quite so favourable
    >
    >
    >Has anybody got any other thoughts? Also Can the company register for
    >VAT and get this back on business expenses? I know VAT is not charged
    >on rent.
    >
    >Cheers,
    >
    >Phil


    I own several properties with the same plan as yourself. I had a meeting
    with my accountant about 12 months ago and, whilst I cant remember the
    specific reasons, the cons outweighed the pros, and I have not done it.

    I think the main factors were admin and lack of flexibility did not make
    it worth the savings.


    --
    Richard Faulkner
     
    Richard Faulkner, Sep 24, 2003
    #5
  6. In article <prdcb.3845$>, Ronald
    Raygun <> writes
    >> 2. No capital gains allowances when coming to sell the property

    >
    >You don't get those for investment property anyway, company or no,
    >unless you use it as your home.


    Yes you do, but only the personal allowance.


    --
    Richard Faulkner
     
    Richard Faulkner, Sep 24, 2003
    #6
  7. PhilP wrote:

    > 1. Only pay corporation tax which is less than personal tax


    Not for a close investment company
     
    Jonathan Bryce, Sep 24, 2003
    #7
  8. Richard Faulkner wrote:

    > In article <prdcb.3845$>, Ronald
    > Raygun <> writes
    >>> 2. No capital gains allowances when coming to sell the property

    >>
    >>You don't get those for investment property anyway, company or no,
    >>unless you use it as your home.

    >
    > Yes you do, but only the personal allowance.


    OK, but companies don't pay CGT as such, do they? To them, a capital
    gain realised would be taxed as ordinary profit, wouldn't it? So, for
    a modest-sized company, the gains tax rate ceiling would be 19%
    (marginally 23.75%).

    The owner, if in danger of becoming a HRTP if the whole loot were
    paid out as dividends in one year, could leave part of the money in
    the company and spread the dividend over several tax years to
    escape the extra 25% dividend tax.
     
    Ronald Raygun, Sep 25, 2003
    #8
  9. PhilP

    john boyle Guest

    In message <Sizcb.200$>, Ronald
    Raygun <> writes
    >Richard Faulkner wrote:
    >
    >> In article <prdcb.3845$>, Ronald
    >> Raygun <> writes
    >>>> 2. No capital gains allowances when coming to sell the property
    >>>
    >>>You don't get those for investment property anyway, company or no,
    >>>unless you use it as your home.

    >>
    >> Yes you do, but only the personal allowance.

    >
    >OK, but companies don't pay CGT as such, do they? To them, a capital
    >gain realised would be taxed as ordinary profit, wouldn't it? So, for
    >a modest-sized company, the gains tax rate ceiling would be 19%
    >(marginally 23.75%).
    >
    >The owner, if in danger of becoming a HRTP if the whole loot were
    >paid out as dividends in one year, could leave part of the money in
    >the company and spread the dividend over several tax years to
    >escape the extra 25% dividend tax.
    >

    The snag with owning investment property in a LtdCo (as opposed to a
    commercial property used in the course of a business) is that not only
    will the LtdCo pay Corp Tax on the profit on sale but if you then sell
    the shares or wind the company up you have to pay personal CGT = double
    taxation.
    --
    john boyle
     
    john boyle, Sep 25, 2003
    #9
  10. PhilP

    David Floyd Guest

    In message of Thu, 25 Sep 2003, john boyle writes
    >In message <Sizcb.200$>, Ronald
    >Raygun <> writes
    >>Richard Faulkner wrote:
    >>
    >>> In article <prdcb.3845$>, Ronald
    >>> Raygun <> writes
    >>>>> 2. No capital gains allowances when coming to sell the property
    >>>>
    >>>>You don't get those for investment property anyway, company or no,
    >>>>unless you use it as your home.
    >>>
    >>> Yes you do, but only the personal allowance.

    >>
    >>OK, but companies don't pay CGT as such, do they? To them, a capital
    >>gain realised would be taxed as ordinary profit, wouldn't it? So, for
    >>a modest-sized company, the gains tax rate ceiling would be 19%
    >>(marginally 23.75%).
    >>
    >>The owner, if in danger of becoming a HRTP if the whole loot were
    >>paid out as dividends in one year, could leave part of the money in
    >>the company and spread the dividend over several tax years to
    >>escape the extra 25% dividend tax.
    >>

    >The snag with owning investment property in a LtdCo (as opposed to a
    >commercial property used in the course of a business) is that not only
    >will the LtdCo pay Corp Tax on the profit on sale but if you then sell
    >the shares or wind the company up you have to pay personal CGT = double
    >taxation.


    Not really, because you pay dividends out until the Revenue Reserves are
    all paid out as such. Then the shares are worth next to nothing if there
    are no assets left.

    DF
     
    David Floyd, Sep 25, 2003
    #10
  11. john boyle wrote:

    > The snag with owning investment property in a LtdCo (as opposed to a
    > commercial property used in the course of a business) is that not only
    > will the LtdCo pay Corp Tax on the profit on sale but if you then sell
    > the shares or wind the company up you have to pay personal CGT = double
    > taxation.


    Eh? Explain, please.

    I set up a company and am the sole shareholder and the share capital
    consists of one fully paid up share of one pound. I personally lend
    the company £100k which I've managed to raise by hook or by crook.
    The company now uses its £100,001 to buy an investment property.
    All the income from the venture, after expenses, I take as dividends.

    I sell the property for £200,001 and repay myself the £100k loan.
    The company has made £100k profit and pays CT of £19k. At this point
    my £1 share is worth £81,001. I pay myself £81k as dividends, over
    the course of 3 tax years, thus avoiding income tax assuming I have
    no other income. At this point my £1 share is worth £1. I wind up
    the company and get my £1 back.

    Where's the double taxation?
    Obviously I'd be a fool to ind up the company before paying myself
    as dividend what the company is worth.
     
    Ronald Raygun, Sep 25, 2003
    #11
  12. PhilP

    john boyle Guest

    In message <XOKOm8KHJ2c$Ewm6@127.0.0.1>, David Floyd
    <> writes
    >Not really, because you pay dividends out until the Revenue Reserves
    >are all paid out as such. Then the shares are worth next to nothing if
    >there are no assets left.


    You can only pay divis from distributable profits. Divis are taxed.
    There is not ACT anymore.


    --
    john boyle
     
    john boyle, Sep 26, 2003
    #12
  13. PhilP

    john boyle Guest

    In message <xnJcb.535$>, Ronald Raygun
    <> writes
    >john boyle wrote:
    >
    >> The snag with owning investment property in a LtdCo (as opposed to a
    >> commercial property used in the course of a business) is that not only
    >> will the LtdCo pay Corp Tax on the profit on sale but if you then sell
    >> the shares or wind the company up you have to pay personal CGT = double
    >> taxation.

    >
    >Eh? Explain, please.
    >
    >I set up a company and am the sole shareholder and the share capital
    >consists of one fully paid up share of one pound. I personally lend
    >the company £100k which I've managed to raise by hook or by crook.
    >The company now uses its £100,001 to buy an investment property.
    >All the income from the venture, after expenses,


    And after CT.

    >I take as dividends.


    Which are taxed.

    >
    >I sell the property for £200,001 and repay myself the £100k loan.
    >The company has made £100k profit and pays CT of £19k. At this point
    >my £1 share is worth £81,001. I pay myself £81k as dividends, over
    >the course of 3 tax years, thus avoiding income tax assuming I have
    >no other income. At this point my £1 share is worth £1. I wind up
    >the company and get my £1 back.
    >
    >Where's the double taxation?
    >Obviously I'd be a fool to ind up the company before paying myself
    >as dividend what the company is worth.
    >


    Look at my exact words

    So you've no other income? The OP was using this as an extra income. I
    did use the word IF.

    --
    john boyle
     
    john boyle, Sep 26, 2003
    #13
  14. PhilP

    David Floyd Guest

    In message of Fri, 26 Sep 2003, john boyle writes
    >In message <XOKOm8KHJ2c$Ewm6@127.0.0.1>, David Floyd
    ><> writes
    >>Not really, because you pay dividends out until the Revenue Reserves
    >>are all paid out as such. Then the shares are worth next to nothing if
    >>there are no assets left.

    >
    >You can only pay divis from distributable profits.


    We ARE talking about distributable profits in this thread.

    >Divis are taxed. There is not ACT anymore.


    Slightly wrong. We were not talking about ACT. Dividends are regarded
    as already taxed in the hands of the recipient. If the grossed up
    dividends (at 10%) takes the recipient into higher rate then further tax
    is due (I won't go into the way it's calculated now).
    So with careful planning a large company profit (in the form of a
    Capital Gain - which makes no difference for a ltd co) can be
    distributed over this and future years without any further tax payable.

    DF
     
    David Floyd, Sep 27, 2003
    #14
  15. PhilP

    john boyle Guest

    In message <8KZFyzA0BUd$EwLd@127.0.0.1>, David Floyd
    <> writes
    >>Divis are taxed. There is not ACT anymore.

    >
    >Slightly wrong. We were not talking about ACT. Dividends are regarded
    >as already taxed in the hands of the recipient. If the grossed up
    >dividends (at 10%) takes the recipient into higher rate then further
    >tax is due (I won't go into the way it's calculated now).
    >So with careful planning a large company profit (in the form of a
    >Capital Gain - which makes no difference for a ltd co) can be
    >distributed over this and future years without any further tax payable.
    >


    ER, thanks for that. You are, of course, quite right I was merely
    pointing out that if wanted to realise his profit in one go then it
    could end up rather tax inefficient. Of course there are ways round it,
    but it isnt as simple as the original poster may have realised.

    There is something nagging away in the back of my mind about the way you
    described of distributing the residual profit as income over a number of
    years when the underlying company has ceased trading and is just a
    shell. I cant find what it is but will let you know.
    --
    john boyle
     
    john boyle, Sep 27, 2003
    #15
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