House Purchase through Limited Business
Discussion
OK maybe a stange one here, hopefully I can get some goods advise,
The opportunity has come up to purchase a house for me to live in which could well be the forever house, The problem is personally I would struggle to get the finance together at this moment.
Would it be possible for my company to purchase it, it would be with a mortgage and rent it out to me,
I would in the future want to then purchase it from the company,
What are the implications involved with doing this, would the company get any tax relief on the mortgage payments, who decides what a fair amount of rental would be allowed, who decides what the market price is when it comes to sell ?
Bearing in mind for this house 5 different agents have stated a 300K difference in the expected sale price
The opportunity has come up to purchase a house for me to live in which could well be the forever house, The problem is personally I would struggle to get the finance together at this moment.
Would it be possible for my company to purchase it, it would be with a mortgage and rent it out to me,
I would in the future want to then purchase it from the company,
What are the implications involved with doing this, would the company get any tax relief on the mortgage payments, who decides what a fair amount of rental would be allowed, who decides what the market price is when it comes to sell ?
Bearing in mind for this house 5 different agents have stated a 300K difference in the expected sale price
I'm sure you can do this but...
1) I'd expect the IR to want to see a market value rent being paid
2) When the house is transferred to you, the IR will want to see the correct market value paid
3) This new value will probably result in an asset appreciation and therefore have a tax liability to the company
Since as an individual any gain in your main residence is tax free, I think you would be a lot better personally buying the house, perhaps using a formal loan from the company.
davidy
1) I'd expect the IR to want to see a market value rent being paid
2) When the house is transferred to you, the IR will want to see the correct market value paid
3) This new value will probably result in an asset appreciation and therefore have a tax liability to the company
Since as an individual any gain in your main residence is tax free, I think you would be a lot better personally buying the house, perhaps using a formal loan from the company.
davidy
First thing to scream out is - taxable Benefit in Kind.
Provision by an employer of living accomodation to an employee/director will result in a BIK assessment on the employee/director UNLESS the employee pays full market rent or the accomodation is a necessary part of the job (live in caretaker, carer, teacher etc).
Obviously, rental income received by the company will be subject to Corporation Tax - although the company would be able to offset general rental type costs against the rental income in the normal way.
If and when the company sell the property, the gain would be taxable under Capital Gains Tax - whereas if it was owned privately by the occupier it would be totally exempted from CGT under the Main Residence exemption.
Depending on how much of the company income was derived from the rental income, it might find that it could lose its favourable Small Trading Company status and have to pay full rates of Corporation Tax on its investment income(i.e rents received).
Provision by an employer of living accomodation to an employee/director will result in a BIK assessment on the employee/director UNLESS the employee pays full market rent or the accomodation is a necessary part of the job (live in caretaker, carer, teacher etc).
Obviously, rental income received by the company will be subject to Corporation Tax - although the company would be able to offset general rental type costs against the rental income in the normal way.
If and when the company sell the property, the gain would be taxable under Capital Gains Tax - whereas if it was owned privately by the occupier it would be totally exempted from CGT under the Main Residence exemption.
Depending on how much of the company income was derived from the rental income, it might find that it could lose its favourable Small Trading Company status and have to pay full rates of Corporation Tax on its investment income(i.e rents received).
Edited by Eric Mc on Wednesday 5th March 18:28
Thanks for all the replies,
The main reason for wanting to do it is I just cant raise the full funds at this moment in time, But I truely hope and expect it will be possible in 2 - 3 years.
I would not be looking for any lower rent payment and in fact it has already been assested by some rental companies so the price guide would already be there.
There is money in teh company but by the time I have taken personal tazes etc then it would reduce the amount possible to put forward, the company would be in a better posistion than me personally to make the monthly mortgage payments which would well be around 4 K.
I cant stress enough that my reasons would be wanting to get the house rather than getting around any tax issues or doing anything thats even mildly questionable
The main reason for wanting to do it is I just cant raise the full funds at this moment in time, But I truely hope and expect it will be possible in 2 - 3 years.
I would not be looking for any lower rent payment and in fact it has already been assested by some rental companies so the price guide would already be there.
There is money in teh company but by the time I have taken personal tazes etc then it would reduce the amount possible to put forward, the company would be in a better posistion than me personally to make the monthly mortgage payments which would well be around 4 K.
I cant stress enough that my reasons would be wanting to get the house rather than getting around any tax issues or doing anything thats even mildly questionable
Exigeowner said:
Thanks for all the replies,
The main reason for wanting to do it is I just cant raise the full funds at this moment in time, But I truely hope and expect it will be possible in 2 - 3 years.
I would not be looking for any lower rent payment and in fact it has already been assested by some rental companies so the price guide would already be there.
There is money in teh company but by the time I have taken personal tazes etc then it would reduce the amount possible to put forward, the company would be in a better posistion than me personally to make the monthly mortgage payments which would well be around 4 K.
I cant stress enough that my reasons would be wanting to get the house rather than getting around any tax issues or doing anything thats even mildly questionable
I'd have a chat with your business bankers to see what sort of finance you can raise on this sort of investment. You might find you are limited by lower LTV's on a commercial investment. The main reason for wanting to do it is I just cant raise the full funds at this moment in time, But I truely hope and expect it will be possible in 2 - 3 years.
I would not be looking for any lower rent payment and in fact it has already been assested by some rental companies so the price guide would already be there.
There is money in teh company but by the time I have taken personal tazes etc then it would reduce the amount possible to put forward, the company would be in a better posistion than me personally to make the monthly mortgage payments which would well be around 4 K.
I cant stress enough that my reasons would be wanting to get the house rather than getting around any tax issues or doing anything thats even mildly questionable
I'd also have a chat with your accountant as to how its going to affect the firm. I've been told it can be quite tricky if your firm isn't set up to hold property, but I can't remember the details.
Exigeowner
I'm trying to think laterally here (so please don't shoot me down!) to get you to a point where by you can buy this dream house.
My idea is based on these assumptions:
1) it's your business we are talking about (that might buy the house)
2) You are a decision maker but need 1 or more other director/owners to approve something
3) The business has money; you don't.
4) You don't want to do anything questionable under tax laws; you just want to buy your dream house.
My suggestion is:
Why don't you award yourself a payrise so that you are able to qualify for a mortgage to buy your dream house?
If not a payrise perhaps a one off dividend to give you enough for a deposit that makes monthly mortgage payments affordable? You could always say to the other directors that this dividend will be paid back in 2 or 3 yearstime when the firm is doing better (by re-mmortgaging I guess once the market moves up - one hopes! - or something? EricMc - feasible??!)
Of course you might have to pay something to the other directors too (if it's a dividend) but I'm thinking maybe a pay rise is the most straightforward? Of course there's tax and usual NI to pay but at least you'll then qualify for a resi mortgage, there's no problem with further stamp duty and other tax implications (BiK issues etc that EricMc has warned of in above posts) when transferring said property from company to individual (as it's your main residence) and it's all perfectly legal and above board.
If you really want that property perhaps that's the quickest and most efficient way of doing things?
Thoughts guys?!
(edited to remove swear word)
I'm trying to think laterally here (so please don't shoot me down!) to get you to a point where by you can buy this dream house.
My idea is based on these assumptions:
1) it's your business we are talking about (that might buy the house)
2) You are a decision maker but need 1 or more other director/owners to approve something
3) The business has money; you don't.
4) You don't want to do anything questionable under tax laws; you just want to buy your dream house.
My suggestion is:
Why don't you award yourself a payrise so that you are able to qualify for a mortgage to buy your dream house?
If not a payrise perhaps a one off dividend to give you enough for a deposit that makes monthly mortgage payments affordable? You could always say to the other directors that this dividend will be paid back in 2 or 3 yearstime when the firm is doing better (by re-mmortgaging I guess once the market moves up - one hopes! - or something? EricMc - feasible??!)
Of course you might have to pay something to the other directors too (if it's a dividend) but I'm thinking maybe a pay rise is the most straightforward? Of course there's tax and usual NI to pay but at least you'll then qualify for a resi mortgage, there's no problem with further stamp duty and other tax implications (BiK issues etc that EricMc has warned of in above posts) when transferring said property from company to individual (as it's your main residence) and it's all perfectly legal and above board.
If you really want that property perhaps that's the quickest and most efficient way of doing things?
Thoughts guys?!
(edited to remove swear word)
Edited by Oi_Oi_Savaloy on Thursday 6th March 08:40
Dividends payable are based on shares owned. If a dividend is granted to one shareholder, then, legally, the other shareholders are legally entitled to their extra dividend on a pro-rata basis. If they are willing to allow one shareholder additional dividends, they will have to sign waivers dispensing with their entitlement to the additional dividends they would otherwise be due.
As I keep saying, paying dividends and/or making large loans to directors can be subject to all sorts of restrictions under bothe company law and tax law and it isn't always a valid option.
As has been said previously, using a company of which you are only part owner to fund a personal project needs the full approval of the other owners - and consideration of the situation that may develop if one or more of the other directors/shareholders want to do the same thing as you.
As I keep saying, paying dividends and/or making large loans to directors can be subject to all sorts of restrictions under bothe company law and tax law and it isn't always a valid option.
As has been said previously, using a company of which you are only part owner to fund a personal project needs the full approval of the other owners - and consideration of the situation that may develop if one or more of the other directors/shareholders want to do the same thing as you.
That certainly simplifies the decision making process.
If feasible, I would be more inclined to look at the increased personal income from the company route - either through additional salary or through additional dividends rather than have the company actualy purchase the house.
I find it rather strange that a shareholder/director of a company would want their principle private residence (i.e. home) owned by their company - and therefore vulnerable to the commercial and financial risks that go along with any business. After all, one of the prime motivations for many people who run their trade through a limited company is to ensure that their personal property (especially their home) is protected from creditors. Having the company own your home is precisely the opposite strategy.
If feasible, I would be more inclined to look at the increased personal income from the company route - either through additional salary or through additional dividends rather than have the company actualy purchase the house.
I find it rather strange that a shareholder/director of a company would want their principle private residence (i.e. home) owned by their company - and therefore vulnerable to the commercial and financial risks that go along with any business. After all, one of the prime motivations for many people who run their trade through a limited company is to ensure that their personal property (especially their home) is protected from creditors. Having the company own your home is precisely the opposite strategy.
OK - forget the dividend route for the moment (mainly because the IR will look at the two shareholders, you and your wife, and probably get upset at the dividend thing; judging by EricMc's comment a couple of mins ago).
Why don't you give both of you a pay rise then? And put the house (or mortgage) in both your names.
The fact that the other shareholder is your wife makes things easier (I take it she's in love with the house too?) to negotiate.
Once we have a solution you can just tee up the wife gradually and then once she's established it's her idea it'll get approved in no time.....
Why don't you give both of you a pay rise then? And put the house (or mortgage) in both your names.
The fact that the other shareholder is your wife makes things easier (I take it she's in love with the house too?) to negotiate.
Once we have a solution you can just tee up the wife gradually and then once she's established it's her idea it'll get approved in no time.....
I do have last years divis to take which should be just six figures but my accounts for last year have not been made up yet, my problem is mostly for the month to month mortgage payments which are more than my actual montly salary as although I take a fair wage for my posistion most is dividend at the end of each year, I guess I would not have to wait till end of each year to do the div payment and do it each 1/4 so I then have funds to pay the mortgage
Exigeowner said:
I do have last years divis to take which should be just six figures but my accounts for last year have not been made up yet, my problem is mostly for the month to month mortgage payments which are more than my actual montly salary as although I take a fair wage for my posistion most is dividend at the end of each year, I guess I would not have to wait till end of each year to do the div payment and do it each 1/4 so I then have funds to pay the mortgage
How do your accounts for the previous year stack up, would your accountant do a projection for this years earnings. YHM btw.
That sounds like the opposite of what the two directors of a company I once worked for did.
As individuals they owned/had a mortgage on the business premises, which the business then paid them rent for. It was a cunning way of hoovering even more money out of the business than their salaries (£45K each in 1988!).
As individuals they owned/had a mortgage on the business premises, which the business then paid them rent for. It was a cunning way of hoovering even more money out of the business than their salaries (£45K each in 1988!).
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