Using dividends to invest in property
Discussion
I'm the sole shareholder of a retail business in profit, and I have 50k in dividends which I can take. However I plan on using the dividend as deposits on a new property portfolio (new ltd co).
What is the most tax efficient strategy for taking dividends from one company, and essentially ploughing it into another?
What is the most tax efficient strategy for taking dividends from one company, and essentially ploughing it into another?
cheekymeerkat said:
I'm the sole shareholder of a retail business in profit, and I have 50k in dividends which I can take. However I plan on using the dividend as deposits on a new property portfolio (new ltd co).
What is the most tax efficient strategy for taking dividends from one company, and essentially ploughing it into another?
Any reason why the £50,000 cannot be lent by your current Ltd to the new Ltd?What is the most tax efficient strategy for taking dividends from one company, and essentially ploughing it into another?
I did this last year (although not specifically for property investment but the basis is the same)
Popped a holding company above the trading company and divi up profits - no (additional) tax to pay at that stage - can then invest those funds as I see fit, by and large, and they are protected from me monumentally mucking up the trading company in some way (a consultancy business so unlikely but nevertheless...).
The restructuring was relatively simple but had some wrinkles - I got 95% of the way there but eventually handed it over to a mate (proper company lawyer) who corrected the docs for a beer or three. My mistakes only arose from the provisions of the articles of association and respective rights so relatively detailed stuff - no idea if it ever would have become a big problem if i'd just processed with the errors in there. I'd suggest you get a company lawyer to help you.
There are other matters to consider, mainly tax and reporting.
Popped a holding company above the trading company and divi up profits - no (additional) tax to pay at that stage - can then invest those funds as I see fit, by and large, and they are protected from me monumentally mucking up the trading company in some way (a consultancy business so unlikely but nevertheless...).
The restructuring was relatively simple but had some wrinkles - I got 95% of the way there but eventually handed it over to a mate (proper company lawyer) who corrected the docs for a beer or three. My mistakes only arose from the provisions of the articles of association and respective rights so relatively detailed stuff - no idea if it ever would have become a big problem if i'd just processed with the errors in there. I'd suggest you get a company lawyer to help you.
There are other matters to consider, mainly tax and reporting.
sleepezy said:
I did this last year (although not specifically for property investment but the basis is the same)
Popped a holding company above the trading company and divi up profits - no (additional) tax to pay at that stage - can then invest those funds as I see fit, by and large, and they are protected from me monumentally mucking up the trading company in some way (a consultancy business so unlikely but nevertheless...).
The restructuring was relatively simple but had some wrinkles - I got 95% of the way there but eventually handed it over to a mate (proper company lawyer) who corrected the docs for a beer or three. My mistakes only arose from the provisions of the articles of association and respective rights so relatively detailed stuff - no idea if it ever would have become a big problem if i'd just processed with the errors in there. I'd suggest you get a company lawyer to help you.
There are other matters to consider, mainly tax and reporting.
And Entrepreneurs’ relief. Popped a holding company above the trading company and divi up profits - no (additional) tax to pay at that stage - can then invest those funds as I see fit, by and large, and they are protected from me monumentally mucking up the trading company in some way (a consultancy business so unlikely but nevertheless...).
The restructuring was relatively simple but had some wrinkles - I got 95% of the way there but eventually handed it over to a mate (proper company lawyer) who corrected the docs for a beer or three. My mistakes only arose from the provisions of the articles of association and respective rights so relatively detailed stuff - no idea if it ever would have become a big problem if i'd just processed with the errors in there. I'd suggest you get a company lawyer to help you.
There are other matters to consider, mainly tax and reporting.
cheekymeerkat said:
I'm the sole shareholder of a retail business in profit, and I have 50k in dividends which I can take. However I plan on using the dividend as deposits on a new property portfolio (new ltd co).
What is the most tax efficient strategy for taking dividends from one company, and essentially ploughing it into another?
Holding company is the most tax efficient, no tax on dividends, can use the holiday company to invest/keep the profits to reinvest.What is the most tax efficient strategy for taking dividends from one company, and essentially ploughing it into another?
Make sure you consult someone in the know so it is setup correctly.
Just beware though you'll get hit with higher interest rates with commercial mortgages and need to be trading for quite a while to get a mortgage possibly through your other company. Some accountants tat help with setting holding companies up can assist you with mortgages to or point you in the direction of companies which set them up/
Holding company at the top, intercompany loan across, take the money and invest personally....
You really need to speak to your accountant, who knows your business, your tax bands, your overall situation, your goals etc.
Maybe even a pension, get corp tax relief of £9,500 (if you have allowances and can carry back)....would that £9,500 be better return than you'd get on the property if you don't need it in your pocket now? A good accountant who works with a good FA can do wonders, but not all tax advice is right for everyone, we all have different goals and ambitions!
You really need to speak to your accountant, who knows your business, your tax bands, your overall situation, your goals etc.
Maybe even a pension, get corp tax relief of £9,500 (if you have allowances and can carry back)....would that £9,500 be better return than you'd get on the property if you don't need it in your pocket now? A good accountant who works with a good FA can do wonders, but not all tax advice is right for everyone, we all have different goals and ambitions!
dirty boy said:
Holding company at the top, intercompany loan across, take the money and invest personally....
I've personally done all of the above across a few years, first intercompany now holding companyTo be honest, i'd personally really take your time as it creates A LOT of admin and compliance, several accounts and general hassle.
Interest rates are about 1% more expensive in ltd co
In hindsight - if you want to buy one property i'd probably keep it simple and draw dividends, pay tax and invest personally .
If you are throwing off anual surplus profits and looking to build a property business over the linger term then either the inter company or holiding co are the way to go
It's also worth considering the more "boring" option of funds / pensions if you want an easy life and better tax treatment.
Properties i've had have done well - but also a big distraction that can take focus from your main income generating business so hard one to judge
As always though - for some like me it's an itch i had to scratch
Birkin1932 said:
Stay in Bed Instead said:
Any reason why the £50,000 cannot be lent by your current Ltd to the new Ltd?
Can be an issue if the old company fails and administrators ask for the company's loan backBut yes, its a common situation to do this
Although also - as i have been lead to believe - the inter company loan can be agreed to be written off with no tax consequence?
I think we had to get the accountant to "clear" a dividend up to the holding co in advance, now its up there it is that companys money to do as it pleases, buy property etc.
Rameez-Q said:
need to be trading for quite a while to get a mortgage possibly through your other company.
I've not personally found that to be the case, as long as it's a clean new company, classed as SPV and only does property i've found it to be relatively straightforward - you'll want a good broker of course ^^^
The problem with a holding company which is carrying on investment business (renting property out), is getting ER for the sale of shares in the trading subsidiary. This needs to be thought about.
Loans can generally be written off between connected companies, but in this case the write off would require the trading subsidiary to have sufficient distributable reserves. Otherwise it’s an illegal dividend.
The problem with a holding company which is carrying on investment business (renting property out), is getting ER for the sale of shares in the trading subsidiary. This needs to be thought about.
Loans can generally be written off between connected companies, but in this case the write off would require the trading subsidiary to have sufficient distributable reserves. Otherwise it’s an illegal dividend.
Alpinestars said:
^^^
The problem with a holding company which is carrying on investment business (renting property out), is getting ER for the sale of shares in the trading subsidiary. This needs to be thought about.
Loans can generally be written off between connected companies, but in this case the write off would require the trading subsidiary to have sufficient distributable reserves. Otherwise it’s an illegal dividend.
Interesting, thanks. The problem with a holding company which is carrying on investment business (renting property out), is getting ER for the sale of shares in the trading subsidiary. This needs to be thought about.
Loans can generally be written off between connected companies, but in this case the write off would require the trading subsidiary to have sufficient distributable reserves. Otherwise it’s an illegal dividend.
"would require the trading subsidiary to have sufficient distributable reserves. Otherwise it’s an illegal dividend. "
How does that work in effect? Let's say OP loans £50k from trading to new prop co - what reserves are needed in order to write that off?
trowelhead said:
Interesting, thanks.
"would require the trading subsidiary to have sufficient distributable reserves. Otherwise it’s an illegal dividend. "
How does that work in effect? Let's say OP loans £50k from trading to new prop co - what reserves are needed in order to write that off?
£50k. Whatever you write off is a distribution. So requires sufficient reserves. "would require the trading subsidiary to have sufficient distributable reserves. Otherwise it’s an illegal dividend. "
How does that work in effect? Let's say OP loans £50k from trading to new prop co - what reserves are needed in order to write that off?
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