A Ltd Company Buying A House?
Discussion
A little bit pie in the sky at the moment but what are the benefits/drawbacks of a company you are sole director of buying a house as a way of “investing” excess cash?
For example, completely made up numbers. The company makes £50,000 a year, I take £25,000, via salary and the odd divi. Could the company get a mortgage to buy somewhere for £150,000 with £50,000 deposit? And maybe let it out for the odd Airbnb night? The rest of the time I would stay there (maybe 5 days per month).
Or is it all too much hassle, zero benefit and if I want to do it I should just do it personally?
(already own one place so extra stamp duty hit is a given).
Thanks.
For example, completely made up numbers. The company makes £50,000 a year, I take £25,000, via salary and the odd divi. Could the company get a mortgage to buy somewhere for £150,000 with £50,000 deposit? And maybe let it out for the odd Airbnb night? The rest of the time I would stay there (maybe 5 days per month).
Or is it all too much hassle, zero benefit and if I want to do it I should just do it personally?
(already own one place so extra stamp duty hit is a given).
Thanks.
Badda said:
V6Pushfit said:
I enquired about this and it was a big no-no. Only if it’s offices is it OK I believe.
Are you thinking of pensions?‘if you pay tax at the higher rate and you use mortgages to buy property, your tax bill will be higher if you own property in your own name rather than in a company’
...as my dividends are under the higher rate by design it swung it to be a bad idea.
There is no reason why a limited company cannot buy land and property. Many do.
If that land and property is used to generate income i.e. rent if it is let to tenants. then it will pay Corporation Tax on any profits generated. If being used as holiday accommodation, it is more like a hotel and the income is deemed to be more like a trade.
If a company's profits are largely dependent on property derived income, it may be deemed to be an "investment company" rather than a "trading company" - and that can mesan that some tax breaks, especially on the dissolution of the company, may be lost.
If and when the property is disposed of, then the company will be charged Capital Gains Tax on any gain generated on the capital disposal. Companies pay Capital Gains Tax at Corporation Tax rates, which makes the ultimate tax amount paid on disposal USUALLY lower than what an individual would pay if the asset had ben owned privately. However, individuals do get an annual Capital Gains Allowance (currently £11,300 per individual) which companies do not get. If a property is owned by a number of individuals, then the gain on disposal would be split between the various individuals and each would get their £11,300 allowance.
So, tax could be saved by having the property owned privately by a group of individuals rather than through a company.
If the company owned property is used in any capacity by the directors for personal use, a taxable Benefit in Kind will arise.
The biggest issue with company owned properties is the fact that individuals will have to pay Income Tax (and possibly even NI) when they extract money for themselves from the company. If this is done through dividends, this is in addition to the Corporation Tax the company would already have paid on the profits.
This is quite a complex area with various pros and cons, so you should seek accounting and tax advice before making any firm decisions.
If that land and property is used to generate income i.e. rent if it is let to tenants. then it will pay Corporation Tax on any profits generated. If being used as holiday accommodation, it is more like a hotel and the income is deemed to be more like a trade.
If a company's profits are largely dependent on property derived income, it may be deemed to be an "investment company" rather than a "trading company" - and that can mesan that some tax breaks, especially on the dissolution of the company, may be lost.
If and when the property is disposed of, then the company will be charged Capital Gains Tax on any gain generated on the capital disposal. Companies pay Capital Gains Tax at Corporation Tax rates, which makes the ultimate tax amount paid on disposal USUALLY lower than what an individual would pay if the asset had ben owned privately. However, individuals do get an annual Capital Gains Allowance (currently £11,300 per individual) which companies do not get. If a property is owned by a number of individuals, then the gain on disposal would be split between the various individuals and each would get their £11,300 allowance.
So, tax could be saved by having the property owned privately by a group of individuals rather than through a company.
If the company owned property is used in any capacity by the directors for personal use, a taxable Benefit in Kind will arise.
The biggest issue with company owned properties is the fact that individuals will have to pay Income Tax (and possibly even NI) when they extract money for themselves from the company. If this is done through dividends, this is in addition to the Corporation Tax the company would already have paid on the profits.
This is quite a complex area with various pros and cons, so you should seek accounting and tax advice before making any firm decisions.
V6Pushfit said:
Badda said:
V6Pushfit said:
I enquired about this and it was a big no-no. Only if it’s offices is it OK I believe.
Are you thinking of pensions?‘if you pay tax at the higher rate and you use mortgages to buy property, your tax bill will be higher if you own property in your own name rather than in a company’
...as my dividends are under the higher rate by design it swung it to be a bad idea.
Thank you very much for the replies so far. I live in the SE and eventually want to relocate back to Wales so just weighing up options as to whether to buy now, in a few years time, do it personally or through the business.
It sounds like perhaps doing it as an individual ends up being a bit less hassle but will take appropriate advice at the time.
Thanks again.
It sounds like perhaps doing it as an individual ends up being a bit less hassle but will take appropriate advice at the time.
Thanks again.
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