Advantages and Disadvantages of buying a property through company

[ArabianNights]

The company will be in a position maybe next year at some point, to be able to buy a small residential property for around £250K and the plan is for the director to live in it and pay rent.

What are the advantages and disadvantages of this? We are thinking that this is the easier route, rather than looking at the director finding complicated ways of extracting funds from the business to make the purchase.

If the company buys the property, could the company then sell the property to the director for a token payment, under market value?

Thanks

 

[DWS]

I always fail to see the advantage of a Company buying a residential property, once purchased what will the exit plan be?
Renting to the Director will mean a BIK and C/Tax payable on any rent received.
Sale to Director will be classed as being made at Market Value with C/Tax charged on any profit

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[ArabianNights]

I always fail to see the advantage of a Company buying a residential property, once purchased what will the exit plan be?
Renting to the Director will mean a BIK and C/Tax payable on any rent received.
Sale to Director will be classed as being made at Market Value with C/Tax charged on any profit

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How would the rent paid by the direct be a BIK? If paid at market rates? Is there any documentation on that? Seems pretty illogical, because the company could rent to anyone. Corporation tax is a valid point. Is there any documentation that states that sale of property/ assets to company direct has to be market value?

 

[DWS]

I am sure if you look into it you will find documentation and legislation on both matters

 

[ArabianNights]

I am sure if you look into it you will find documentation and legislation on both matters

Well, normally, it’s for the person who makes a point is the one that has to prove it!!! Cannot make claims without backing it up!

But, I did some research and came up with this, which implies that a company director can purchase property / assets from the company under market value, but will be classed as earnings:

CG16270 - Assets: valuation: transfer at undervalue: employee/director: consideration - HMRC internal manual - GOV.UK

www.gov.uk

If you have any ‘evidence’ to support your claim that a director paying rent is BIK (I don’t see logically how a person paying rent is a benefit for the person, but let’s see) then it would be interesting to see ?

 

[DWS]

Well, normally, it’s for the person who makes a point is the one that has to prove it!!! Cannot make claims without backing it up!

But, I did some research and came up with this, which implies that a company director can purchase property / assets from the company under market value, but will be classed as earnings:

If you have any ‘evidence’ to support your claim that a director paying rent is BIK (I don’t see logically how a person paying rent is a benefit for the person, but let’s see) then it would be interesting to see ?

I don’t need to prove anything or back it up!
You asked the questions and I gave you the answers whether you decide to believe me or not is up to you.
Run it through with your accountant and I am sure they will back me up.

 

[ArabianNights]

I don’t need to prove anything or back it up!
You asked the questions and I gave you the answers whether you decide to believe me or not is up to you.
Run it through with your accountant and I am sure they will back me up.

OK pumpkin, thanks for your input

 

[DWS]

OK pumpkin, thanks for your input

OK Pumpkin? Nice choice of words!
If you read the link you posted it just backs up the fact that the sale will be at MV
I can’t post a link for some reason but if you look up expenses and benefits-accommodation it should show you how to work out the BIK

 

[ArabianNights]

OK Pumpkin? Nice choice of words!
If you read the link you posted it just backs up the fact that the sale will be at MV
I can’t post a link for some reason but if you look up expenses and benefits-accommodation it should show you how to work out the BIK

Thank you. It’s a term of endearment.

Yes you are right. But the same link also states that if assets are sold at under market value, the difference between the market value and the under-value amount paid, is treated as employment income.

 

[DWS]

So what is the value used?
It is Market Value! you can sell the asset for whatever you like but the deemed sale will be at Market Value and the shortfall made up to that price

 

[Gyumri]

But the same link also states that if assets are sold at under market value, the difference between the market value and the under-value amount paid, is treated as employment income.

And it also states that the company will still be hit with a CGT liability, which arises not just on profit but the diminution in real value that the transaction has produced. In other words the company is still caught with the same CGT liability even if the asset is sold for a penny rather than the proper value.

If you are paying a proper rent to the company rather than £5 per week then you can't be receiving a benefit in kind, which is really another way of saying disguised remuneration.

What you are trying to do is to extract value from the company while minimising you tax liability but I can't see the property ownership route leading to any advantage.

The company would also have to account for an Annual Tax on Enveloped Property, which however is not much.

Annual Tax on Enveloped Dwellings (ATED): At a glance - www.rossmartin.co.uk

What is ATED? When does ATED apply? What relief is available and how is it claimed? What are the ATED filing requirements?

www.rossmartin.co.uk

 

[ArabianNights]

And it also states that the company will still be hit with a CGT liability, which arises not just on profit but the diminution in real value that the transaction has produced. In other words the company is still caught with the same CGT liability even if the asset is sold for a penny rather than the proper value.

If you are paying a proper rent to the company rather than £5 per week then you can't be receiving a benefit in kind, which is really another way of saying disguised remuneration.

What you are trying to do is to extract value from the company while minimising you tax liability but I can't see the property ownership route leading to any advantage.

The company would also have to account for an Annual Tax on Enveloped Property, which however is not much.

Annual Tax on Enveloped Dwellings (ATED): At a glance - www.rossmartin.co.uk

What is ATED? When does ATED apply? What relief is available and how is it claimed? What are the ATED filing requirements?

www.rossmartin.co.uk

Thanks so much! That’s very useful ??

 

[DWS]

And it also states that the company will still be hit with a CGT liability, which arises not just on profit but the diminution in real value that the transaction has produced. In other words the company is still caught with the same CGT liability even if the asset is sold for a penny rather than the proper value.

If you are paying a proper rent to the company rather than £5 per week then you can't be receiving a benefit in kind, which is really another way of saying disguised remuneration.

And it also states that the company will still be hit with a CGT liability, which arises not just on profit but the diminution in real value that the transaction has produced. In other words the company is still caught with the same CGT liability even if the asset is sold for a penny rather than the proper value.

If you are paying a proper rent to the company rather than £5 per week then you can't be receiving a benefit in kind, which is really another way of saying disguised remuneration.

What you are trying to do is to extract value from the company while minimising you tax liability but I can't see the property ownership route leading to any advantage.

The company would also have to account for an Annual Tax on Enveloped Property, which however is not much.

Companies do not pay CGT

It is a BIK but you need to do the calculations to work out what this would be, this is done using the property value and any improvements, once you have that amount you will see if the rent being paid is above or below this amount, if below it is a BIK

 

[Gyumri]

@DWS is quite right for pulling me up again - it's not "capital gains tax" but the chargeable gain that would need to be worked out if the OP were to buy the property from the company.

Corporation Tax when you sell business assets

Paying Corporation Tax when your limited company sells an asset for more than it paid - includes chargeable gains, intangible assets, working out inflation

www.gov.uk

 

[pentel]

A couple of things to consider:

1) if the property is owned by the director then PPR relief is available. This means that when selling there is on Corporation tax to pay on any increase in value.

2) if the company currently qualifies for business relief in relation to inheritance tax then this may be jeopardised by having a house held by the company. This would apply to the whole value of the business, not just the property.

Business Relief for Inheritance Tax

How to get Inheritance Tax relief on business assets in an estate, what qualifies, giving away business property or assets

www.gov.uk

 

[NicoJ]

A couple of things to consider:

1) if the property is owned by the director then PPR relief is available. This means that when selling there is on Corporation tax to pay on any increase in value.

2) if the company currently qualifies for business relief in relation to inheritance tax then this may be jeopardised by having a house held by the company. This would apply to the whole value of the business, not just the property.

Business Relief for Inheritance Tax

How to get Inheritance Tax relief on business assets in an estate, what qualifies, giving away business property or assets

www.gov.uk

You have an annual exemption for CGT as an individual (if PPR doesn't apply for some reason) which you don't have as a company.

CGT rate is 18% / 28% as an individual vs 19% / 25% in a company.

Also, you need to be aware of SDLT and ATED depending on the value of the property.

The biggest thing, as DWS has already noted is that when the property is sold you would then have personal tax consequences when the proceeds are extracted from the company.

 

[JEREMY HAWKE]

Absolutely mad idea ...........Pure madness

Many companies go bust and you don't know what is around the corner you could lose the house if it all goes wrong and it happens a lot and the busiest people on here are the IPs
My advice
Is buy the house in your own name

 

[fisicx]

We brought a BTL flat and thought it might be advantageous to do this through the company. The mortgage advisor and accountant both advised against doing this. Can’t remember the exact reason why but it wouldn’t have been a wise financial choice.

 

[eteb3]

Expenses and benefits: accommodation

Tax and reporting rules for employers providing accommodation for employees

www.gov.uk

EIM11432 - Living accommodation: definition of annual value - HMRC internal manual - GOV.UK

www.gov.uk

Just the accountant's fees for complying with those regs may negate any benefit to the company.

 

[MBE2017]

Not actual advice, but as a general rule, if only purchasing one property, you are unlikely to gain anything doing it through a company, several and it could be advantageous, mainly from the mortgage interest side.

Take legit tax advice from a specialist who invests in properties themselves, not a standard accountant, no offence meant to any of them, but this is a complicated area, with answers varying by individual circumstance.

The other thing to always consider, is as one advantage is exploited, the door tends to shut a few years later. Nothing stays the same for long.

 

[ArabianNights]

Absolutely mad idea ...........Pure madness

Many companies go bust and you don't know what is around the corner you could lose the house if it all goes wrong and it happens a lot and the busiest people on here are the IPs
My advice
Is buy the house in your own name

Thank you ?

 

[ArabianNights]

Not actual advice, but as a general rule, if only purchasing one property, you are unlikely to gain anything doing it through a company, several and it could be advantageous, mainly from the mortgage interest side.

Take legit tax advice from a specialist who invests in properties themselves, not a standard accountant, no offence meant to any of them, but this is a complicated area, with answers varying by individual circumstance.

The other thing to always consider, is as one advantage is exploited, the door tends to shut a few years later. Nothing stays the same for long.

True! Thank you

 

[WaveJumper]

I would very much echo @MBE2017 suggestion, you need to sit down with your accountant or one who understands this area plus with your personal investment / tax advisor I feel only then are you going to get a clear picture of the way forward. This route is not for everyone but it suites many especially if thinking very long term

A link to simple pros and cons …. But get some proper expert advice

Buying Property Through a Limited Company; Pros and Cons | Douglas & Gordon

There are advantages and disadvantages to buying property through a limited company, and like many things in life, nothing is ever black and white! We discuss the pros and cons in this article.

www.douglasandgordon.com

 

[ArabianNights]

I would very much echo @MBE2017 suggestion, you need to sit down with your accountant or one who understands this area plus with your personal investment / tax advisor I feel only then are you going to get a clear picture of the way forward. This route is not for everyone but it suites many especially if thinking very long term

A link to simple pros and cons …. But get some proper expert advice

Buying Property Through a Limited Company; Pros and Cons | Douglas & Gordon

There are advantages and disadvantages to buying property through a limited company, and like many things in life, nothing is ever black and white! We discuss the pros and cons in this article.

www.douglasandgordon.com

Thank you lovely