Can/shall I buy my first property with cash from my limited company?

[Mikeg1990]

Hi all,

My business partner and I set up our business two years ago and have around 100k in the business bank account.

We would like to invest 60k into a buy to let property so this money isn't just sitting there doing nothing.

With regards to our personal finances we do not have any savings.

I have a few questions about the best possible way to buy a property with this money.

Would it be best to buy the property through the business? Are there better ways about going about it? i.e. take a dividends?

My business partner and I are also looking to buy a further two properties next year for our own use, using money from the business. What are the implications with regards to stamp duty?

Any advice or guidance would be great as property is something entirely new to us.

 

[Adam93]

There are so many areas you need to consider. Corporation tax, mortgage interest relief, income tax, stamp duty land tax, CGT, ATED and VAT just to name a few. So, the best advice is to ask your accountant and if you don't have one, get one quick!

 

[Mikeg1990]

Thanks for the advice, I've got an accountant who im waiting to hear from.

I'm looking for some further advice as this is a big step I'd like to know exactly what's what and not be so reliant on my accountant.

Any help/guidance would be great!

 

[GillespieBS]

It is really hard to give general advice as there is so much to discuss when you have to consider every possible scenario.

Best thing to do is to set out your expectations of income and expenditure from the property (including your mortgage interest). Do you expect the value to increase significantly (capital gain) and do you intend to hold for the long term or sell in the short term.

Your accountant can weigh that up with your other incomes/earnings and other capital assets and give you the tax scenarios.

Do you definitely want to make this investment with your business partner?

 

[James Rae]

As already stated above, there as many factors to consider and there are likely as many opinions as to how you go forward...

Personally, I would consider 'What is my business?' i.e. am I a property investor? (many people have thought they knew how to be one and have sadly lost their shirts).

If I reinvested the 'surplus' cash and developed my business (the one I am successful at), how much greater can I make the profits/inherent value of the business?

Many of my previous businesses were making healthy profits, but I still kept reinvesting and made them even more profitable before I sold them when I wanted a change.

I trust my words give you food for thought.

 

[Mikeg1990]

Thanks for your reply. To be clear I will be buying the first property with cash we've made from the business.

It's possible we can get a 10% return on our investment, so we'd plan keep the property for 10 years before we sell...

We worked hard trying to achieve the 100k mark in our bank, but it's not changed anything for us as a business. We have come to the conclusion that by buying a property our money will be 'working for us'.

Any further insight/advice would be great.

 

[Adam93]

Firstly, if you purchase the property through your company, your company will become partially exempt for the purposes of VAT. That is probably the most telling issue you have here.

When you say our money, the money (or capital) is still held by the company and extracting that money will give rise to income tax when you wish to do so.

Your company will no longer be 100% a trading company so you will lose the benefit of some capital gains tax reliefs (entrepreneurs relief) and some inheritance tax reliefs (business property relief).

Companies no longer get indexation relief and do not get an annual exempt amount like individuals so the chargeable gain will be more that if you held it personally. Any chargeable gain will be subject to corporation tax rather than capital gains tax.

It may be 'sexy' to have a buy-to-let property but from a tax point of view they can get expensive. I have seen an increase in individuals with surplus funds investing into a pension rather than a buy-to-let. Not to mention the hassle of a BTL compared with the relative ease of investing in a pension.

An employer pension contribution is both tax deducible for the company and tax free for the employees. And if you find a good pension you could be looking at returns of 7% anyway. The short fall is often compensated by the initial tax savings.

 

[The next Steve Jobs]

The biggest gains from investing in property come from purchasing a property with ample potential for conversion/ extension/ upgrades

With a 100k cash it may be possible to purchase a property around £ 1 million via buy to let/develop type loans and mortgages

A large run down house bought for 400k can easily be converted into 6 luxury flats that sell for 100k + ... look for nearby properties that have allready been converted / upgraded


Do your home work...10k wisely spent on homework related tasks will yield 10x that down the line


Location, location location

Cash is king

If you play your cards right and get a little bit lucky a 300% return on investment is possible within a 5 to 10 year time frame... it's all about doing your homework

 

[pentel]

"Your company will no longer be 100% a trading company so you will lose the benefit of some capital gains tax reliefs (entrepreneurs relief) and some inheritance tax reliefs (business property relief).

Companies no longer get indexation relief and do not get an annual exempt amount like individuals so the chargeable gain will be more that if you held it personally. Any chargeable gain will be subject to corporation tax rather than capital gains tax"

Are in my view the most important aspects of this proposal. I would keep this proposed BTL entirely separate.

 

[Glenn Martin]

Set up a Ltd Co for the BTL to sit in so it gets interest relief on the loan interest.

Lend the money from your trading company to the BTL company so it is an inter company loan and not withdrawing a dividend to fund the deposit to buy it outside the company.

PM if you would like to discuss it further

 

[Adam93]

Your company will no longer be 100% a trading company so you will lose the benefit of some capital gains tax reliefs (entrepreneurs relief) and some inheritance tax reliefs (business property relief).

Companies no longer get indexation relief and do not get an annual exempt amount like individuals so the chargeable gain will be more that if you held it personally. Any chargeable gain will be subject to corporation tax rather than capital gains tax.

As Glenn says, that is probably your best bet if you are set on the BTL route. But it still causes the above issues, whether these will be an issue will all depend on your situation. You should discuss with your accountant.

Generally, holding BTL's in a company is only beneficial for large portfolios which are highly geared.

 

[Mikeg1990]

Set up a Ltd Co for the BTL to sit in so it gets interest relief on the loan interest.

Lend the money from your trading company to the BTL company so it is an inter company loan and not withdrawing a dividend to fund the deposit to buy it outside the company.

PM if you would like to discuss it further

Thank you, this may well be the route I go down.

 

[Mikeg1990]

Firstly, if you purchase the property through your company, your company will become partially exempt for the purposes of VAT. That is probably the most telling issue you have here.

When you say our money, the money (or capital) is still held by the company and extracting that money will give rise to income tax when you wish to do so.

Your company will no longer be 100% a trading company so you will lose the benefit of some capital gains tax reliefs (entrepreneurs relief) and some inheritance tax reliefs (business property relief).

Companies no longer get indexation relief and do not get an annual exempt amount like individuals so the chargeable gain will be more that if you held it personally. Any chargeable gain will be subject to corporation tax rather than capital gains tax.

It may be 'sexy' to have a buy-to-let property but from a tax point of view they can get expensive. I have seen an increase in individuals with surplus funds investing into a pension rather than a buy-to-let. Not to mention the hassle of a BTL compared with the relative ease of investing in a pension.

An employer pension contribution is both tax deducible for the company and tax free for the employees. And if you find a good pension you could be looking at returns of 7% anyway. The short fall is often compensated by the initial tax savings.

I appreciate the feedback, thanks.

It's not that it sounds "sexy", it just seems like a wise decision to me.

From what I understand - if I register a new business that I would then loan the necessary capital to, I can buy the property without too many tax implications.

As I mentioned in my first post if I can keep business going as well as it is at the moment, we can afford to buy one property each with cash this time next year.

Would we have to complete a similar process (set up a new business, loan the money, etc) to make it tax efficient?

 

[Mikeg1990]

Set up a Ltd Co for the BTL to sit in so it gets interest relief on the loan interest.

Lend the money from your trading company to the BTL company so it is an inter company loan and not withdrawing a dividend to fund the deposit to buy it outside the company.

PM if you would like to discuss it further

Hey Glen, business has continued to grow, and instead of going down the BTL route,
By next May, my business partner and I would like to purchase a property each, using the money we have in the business.

I have forecasted that by then we should have enough cash in the business bank account to purchase both properties cash, no mortgage needed.

These will be our homes to live in, we don't have great credit scores for numerous reasons and this is partly why we'd go down the cash route.

My business partner both will need to each use 1/3 of what's in the bank each, to be able to afford our dream homes.

I'm aware we cannot just take the money out of the business without paying hefty tax bills and would like some guidance on how to do this in the most tax efficient way.

Let me know your thoughts on this

 

[Lisa Thomas]

Duplicate post?

In case you have not set up two accounts and asked the same question twice, here is a similar post you might like to look at from 'Mikeyg123':

https://www.ukbusinessforums.co.uk/...first-home-with-cash-from-my-business.390880/

 

[Energise Accounting]

Before going down this route think very carefully. As Glenn says you could set up a separate company for the BTL in my opinion the cost of submitting the accounts would out way any benefit achieved unless you are going to invest big time into property.

Keeping the property in the existing business could cause problems later down if the existing business goes into decline.

Wait until your accountant gets back to you, they know you and your business better than any of us and can advise the best way forward.

 

[Glenn Martin]

You would need to take some proper advice from your accountant, as what you are suggesting sounds like the numbers are substantial and will not be tax efficient.

When you have forecasted that you will have enough cash in the business by next May have you also allowed for the large CT bill that you will also owe.

If that is what you want to do you would need to draw the cash as a dividend, and in turn buy the house. This will generate a substantial personal tax bill which will need to be paid, which will lead to you needing another dividend to pay the personal tax and so on.

I wouldn't buy personal properties in the companies name as can cause a whole load of issues around BIK's and if the company got into trouble you would lose your homes potentially