HELP! Buying my first home with cash from my business

Discussion in 'Accounts & Finance' started by Mikeyg123, Aug 15, 2018.

  1. Mikeyg123

    Mikeyg123 UKBF Newcomer Free Member

    24 1
    Hi all,

    Newbie to the forum here with lots of questions, go easy on me.

    My business partner and I set up our marketing consultancy business two years ago and it's going very well.

    We have zero employees and have a lot of money saved in the bank.

    We have paid all tax and vat owed so far, and have no debts or outstanding bills.

    By next May, my business partner and I would like to purchase a property each, using the money in the business.

    I have forecasted that by then we should have enough cash in the business bank account to purchase both properties cash.

    These will be our homes to live in so see this as an investment in our future. I mean who wants that amount of money in the bank any way....

    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 want 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.

    I have spoke with an accountant who has said the most tax efficient way is for us both to set up a new business, one in my name and one in his and then loan the money to each business at the lowest possible interest rate. Is this a good way of doing it?

    Any information on this would be great, also any additional tips or advice with regards to buying a property cash would be great. I.e. would I have room to negotiate on a property price given I am paying with cash and not a mortgage?

    Thanks in advance
     
    Posted: Aug 15, 2018 By: Mikeyg123 Member since: Aug 15, 2018
    #1
  2. KAC

    KAC UKBF Enthusiast Free Member

    911 204
    Is your business a partnership or a limited company?

    Are there 2 or 3 of you?
     
    Posted: Aug 15, 2018 By: KAC Member since: May 7, 2017
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

    9,033 913
    You can always offer less than the listed price for a property. The seller can refuse to sell for that amount. Or they may accept it.

    Cannot see any particular difference to the buyer with you using cash rather than a mortgage, the end result for them is the same either way.
     
    Posted: Aug 15, 2018 By: Mr D Member since: Feb 12, 2017
    #3
  4. Mikeyg123

    Mikeyg123 UKBF Newcomer Free Member

    24 1
    It is a limited company and there is just two of us
     
    Posted: Aug 16, 2018 By: Mikeyg123 Member since: Aug 15, 2018
    #4
  5. Mikeyg123

    Mikeyg123 UKBF Newcomer Free Member

    24 1
    Interesting. I was under the impression that in a competitive market, a seller is likely to take a cash offer over other offers because they don’t have to worry about a buyer backing out due to financing being denied
     
    Posted: Aug 16, 2018 By: Mikeyg123 Member since: Aug 15, 2018
    #5
  6. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,240 720
    Surely you should be looking at doing a MVL.and then doing something else for 2 years.
     
    Posted: Aug 16, 2018 By: UK Contractor Accountant Member since: Sep 18, 2013
    #6
  7. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,240 720
    MVL done properly = 10% tax rate on cash extracted from company as a distribution to shareholders.
     
    Posted: Aug 16, 2018 By: UK Contractor Accountant Member since: Sep 18, 2013
    #7
  8. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Enthusiast Free Member

    634 142
    Slightly off topic but a home to live in is not an investment. Not a good one anyway. To be an investment it would have to be earning you money, which a property doesn't do unless you don't live in it.
     
    Posted: Aug 16, 2018 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #8
  9. Adam93

    Adam93 UKBF Regular Free Member

    157 28
    Firstly, if you plan on living in the property, generally, you want to buy it personally, not via a new company.

    On the basis you want to continue trading. As CA says you could just stop trading, but this often isn’t an option.

    What I would do is get a mortgage. Therefore instead of withdrawing one lump, you only have to withdraw enough to pay the mortgage. With interest rates so low, this will probably be the best option.
     
    Posted: Aug 16, 2018 By: Adam93 Member since: Jan 18, 2018
    #9
  10. SteLacca

    SteLacca UKBF Enthusiast Free Member

    941 178
    If you purchase via the business (whether the current business or newly created ones), then you are exposing yourself to benefits in kind in respect of the provision of accommodation by the business, unless you pay full market rent to the company.

    Full market rent solves nothing. The company will pay corporation tax on the rent, and at some point you will want to extract the surplus from the company, paying the associated personal tax in order to do so. Effectively, you would be creating a situation where the same money in what is, effectively, your own hands is taxed three times (possibly under three separate regimes).

    The company holding properties could potentially jeopardise any claim to entrepreneurs relief when you choose to exit the company, leading to higher rates of capital gains tax on exit.

    If the property/ies is/are sold, corporation tax will be payable on the full gain, since a company cannot qualify for private residence relief.

    The property would also not qualify for the inheritance tax main residence nil rate band, since it would not form a part of your estate (you would hold shares in the company instead).

    You should, perhaps, be talking to a different accountant.
     
    Posted: Aug 16, 2018 By: SteLacca Member since: Jun 16, 2016
    #10
  11. mattk

    mattk UKBF Newcomer Free Member

    1,562 676
    How tax efficient is it buying a residential property through a limited company, especially if you plan on it being your main residence?

    Firstly, the limited company will have to pay the 3% stamp duty surcharge, whereas an individual will not and if you are a first time buyer you qualify for stamp duty relief.

    Secondly, a limited company will have to pay Corporation Tax on the profits when you sell the property, which an individual will not.

    Finally, as others have alluded to, this is your home and most people will want to own that in their own name as security against any changes in regulations, something happening to the limited company and so on.

    For the sake of a one-off 32.5% hit in taxes on the dividends (unless there is a more efficient way of getting the money out), I'd be tempted to pay the tax and have peace of mind.
     
    Posted: Aug 16, 2018 By: mattk Member since: Dec 5, 2005
    #11
  12. SteLacca

    SteLacca UKBF Enthusiast Free Member

    941 178
    Possibly 15% if more than £500K
     
    Posted: Aug 16, 2018 By: SteLacca Member since: Jun 16, 2016
    #12
  13. billmccallum1957

    billmccallum1957 UKBF Ace Full Member

    1,838 391
    If you are basic rate taxpayers, you could take £250,000 and only pay £18,750 in dividend tax.
     
    Posted: Aug 16, 2018 By: billmccallum1957 Member since: Feb 11, 2016
    #13
  14. Adam93

    Adam93 UKBF Regular Free Member

    157 28
    Over a number of years, just maybe. But definitely not in one lump.
     
    Posted: Aug 16, 2018 By: Adam93 Member since: Jan 18, 2018
    #14
  15. newguy007

    newguy007 UKBF Newcomer Free Member

    18 1
    I was in the same situation a few years ago and I decided to draw high dividends over a 2 year period to purchase the house with cash. It was the best decision I've ever made. I don't have to worry about mortgage payments now.
     
    Posted: Aug 16, 2018 By: newguy007 Member since: Jul 20, 2018
    #15
  16. newguy007

    newguy007 UKBF Newcomer Free Member

    18 1
    How is that possible?
     
    Posted: Aug 16, 2018 By: newguy007 Member since: Jul 20, 2018
    #16
  17. SteLacca

    SteLacca UKBF Enthusiast Free Member

    941 178
    It isn't, unless done over a number of years as Adam suggests.
     
    Posted: Aug 16, 2018 By: SteLacca Member since: Jun 16, 2016
    #17
  18. Mikeyg123

    Mikeyg123 UKBF Newcomer Free Member

    24 1
    Thanks everyone for your advice so far.

    To provide you with some further insight, we have cash in the bank that is doing nothing. My business partner and I currently both rent and live with our long term girlfriends.

    My business partner and I would each like to personally own the house we live in, and do not want them to be a part of a businesses assets.

    The problem is we have money in the bank which we cannot take out without paying a hefty tax bill. I'm looking for the most tax efficient way for us to both take out £150k+ each from the business so we can each buy our first home.

    I cannot stop trading so an MVL is not realistic. It's unlikely I can get a mortgage and it's not something I want over my head either.

    Any further advice would be great.
     
    Posted: Aug 16, 2018 By: Mikeyg123 Member since: Aug 15, 2018
    #18
  19. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Enthusiast Free Member

    634 142
    I wouldn't write off the possibility of being able to get a mortgage. If you're going with a fairly big chunk of cash (50% for example), banks won't write off even the poorest credit scores. Interest rates are very low just now, and a lot lower than tax rates...
     
    Posted: Aug 16, 2018 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #19
  20. Newchodge

    Newchodge UKBF Big Shot Free Member

    9,674 2,442
    What level of salary do you currently pay yourselves?
     
    Posted: Aug 16, 2018 By: Newchodge Member since: Nov 8, 2012
    #20