UK Transferring of funds between 2 limited companies to develop property investment company

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Hello all,

This is my first post, I have researched this topic as best I could although the post is long I hope it will be easy to respond to as I have tried to incorporate relevant research so I hope less explaining required. I have an accountant who I will be approaching with although they are contractor specialists rather than property and I would like to be as informed as possible before going ahead.

My aim is to purchase either one or two properties (cash / no mortgage) total value of around £130’000 in the next 12-18 months via a new limited company (and continuing to acquire them thereafter although my income will fall sharply when I enter training next August and thus at a much slower pace). Since one of the biggest problems with acquiring properties via a limited company is difficulty obtaining a mortgage buying them outright is easy/ low risk and I have deemed it the best solution for me and in addition will allow me to avoid some of the unfavourable changes to buy to let tax rules starting April (although I will be subject to the new stamp duty tax hike of 3%).

These properties will be purchased via two income streams:

The majority of the money will be accumulated within my contracting company (company A) over this year (profitable company with no debts). This money will be left to accumulate and I only will be withdrawing my tax free allowance/ expenses maximising savings and paying only the corporation tax of 20%. The current plan is to open a separate limited company (company B) for property investment and arrange an interest free loan between the companies, by transferring the funds between these companies I will be able to invest in / acquire properties without having to pay high tax rates on dividends by withdrawing them as income. Transfer pricing legislation enforces the ‘arm’s length principle’ between connected parties (e.g. companies sharing directors) meaning lending should be carried out as it would among independent companies under comparable conditions and thus a repayment schedule with interest would be appropriate however the Small and medium exemption rules would apply to both our companies (small company being defined as less than 50 employees and an annual turnover less than £10’000’000).

Question 1:Have I interpreted this correctly/ is this legitimate way of transferring money between companies and could it be done multiple times? Can anyone see a better option? is having a separate limited company the best way to go or at least a reasonable way to go (as there are benefits regarding having my GF as an equal director for company B see below)?

Property company B (myself and my girlfriend as directors). She is on a lower salary and has no income via dividends at present. What I would like to do is pay us both a roughly £5000 salary each year (which would be payable tax free annually under new legislation from April). The plan will be to accumulate money in the company anyway to purchase more property so we may not necessarily want to withdraw this cash but I figured if this money comes out tax free we can always then lend this money to the company and increase the amount of money the company owes us tax free later when we may actually want it/ when we have invested in more property. The second stream of income will be drawn from my residential property (following a large an expensive renovation project by withdrawing £50’000 when remortgaging later this year). My understanding is that this money can be withdrawn from the company tax free (on the exception of corporation tax). So in the coming years this £50'000 would be bolstered by £10'000 loans to the company each year. Say we had four properties in 10 years time (thus having invested another £100'000) thought we would now like an income we could either use our collective £10'000 allowance or withdraw from this £150'000 the company owed us from loans. Question 2: Does this seem correct?

Any help or guidance in this matter would be very much appreciated.

Cheers

Scott
 

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