Buying a property to renovate - Ltd Company?
Discussion
I'll apologise first, as what you'll read below is quite complicated...
The Missus and I are looking to buy our first property together as a do it upper. It will be funded solely by cash (with quite a bit of help from both sets of parents).
The property is a mid terrace. It was originally 2 terraces. We want to convert it back into 2 dwellings as it'll be too big for us as a couple.
Our plan is to complete one of the dwellings and sell it on. The proceeds from this sale will then partially pay off the money borrowed from both sets of parents and fund the renovation works to the remaining dwelling. The Missus and I will then live in it for a while, before selling. Again, paying off the parents and what ever we have left (after taxes), will go into our deposit pot for our next do it upper. In the perfect world we are hoping to carry on this cycle until we are in a forever house mortgage free and then carry on turning over property for my income.
Even though this would be our sole residence, I'm pretty certain this would be classed as an investment, so would expect to pay CGT on any profits made (I think?).
I've spoken to my Accountant today, who tells me that I should consider setting up another Ltd Company (I am already a director of a company which is unrelated to this venture) to run this through. I'll be doing most of the work and he pointed out that I should pay myself a wage, however I'm not 100% sure it's the right thing to do at this stage.
Apparently we'd only have to pay 20% on profits, although I'd still be in this bracket if I declared it as income anyway - For example (very simple logic), if I were to make £40k on the property, I'd split the profit 4 ways between ourselves and parents, all of which are well below the 40% tax bracket. He did mention something about VAT too, but it was all starting to go over my head a bit.
In all fairness, I'd like to use this house as a tester as opposed to going all in like my Accountant is proposing.
So my question is, do I set up as a Ltd Company or not? Is there any point in becoming VAT registered, as I know you can't reclaim the VAT unless it's a new build/commercial?
Oh, and if I did set up as a Ltd Company, whose name goes on the deeds?
Hopefully that all makes sense!
The Missus and I are looking to buy our first property together as a do it upper. It will be funded solely by cash (with quite a bit of help from both sets of parents).
The property is a mid terrace. It was originally 2 terraces. We want to convert it back into 2 dwellings as it'll be too big for us as a couple.
Our plan is to complete one of the dwellings and sell it on. The proceeds from this sale will then partially pay off the money borrowed from both sets of parents and fund the renovation works to the remaining dwelling. The Missus and I will then live in it for a while, before selling. Again, paying off the parents and what ever we have left (after taxes), will go into our deposit pot for our next do it upper. In the perfect world we are hoping to carry on this cycle until we are in a forever house mortgage free and then carry on turning over property for my income.
Even though this would be our sole residence, I'm pretty certain this would be classed as an investment, so would expect to pay CGT on any profits made (I think?).
I've spoken to my Accountant today, who tells me that I should consider setting up another Ltd Company (I am already a director of a company which is unrelated to this venture) to run this through. I'll be doing most of the work and he pointed out that I should pay myself a wage, however I'm not 100% sure it's the right thing to do at this stage.
Apparently we'd only have to pay 20% on profits, although I'd still be in this bracket if I declared it as income anyway - For example (very simple logic), if I were to make £40k on the property, I'd split the profit 4 ways between ourselves and parents, all of which are well below the 40% tax bracket. He did mention something about VAT too, but it was all starting to go over my head a bit.
In all fairness, I'd like to use this house as a tester as opposed to going all in like my Accountant is proposing.
So my question is, do I set up as a Ltd Company or not? Is there any point in becoming VAT registered, as I know you can't reclaim the VAT unless it's a new build/commercial?
Oh, and if I did set up as a Ltd Company, whose name goes on the deeds?
Hopefully that all makes sense!
Woody3 said:
So my question is, do I set up as a Ltd Company or not? Is there any point in becoming VAT registered, as I know you can't reclaim the VAT unless it's a new build/commercial?
Oh, and if I did set up as a Ltd Company, whose name goes on the deeds?
Hopefully that all makes sense!
If you want to test the water, I don't see the point of setting up a ltd company. If you plan to live in the property as your primary residence then sell down the line this is capital gains tax free if bought in your name. Operating via ltd, proceeds from house sale would be taxed as company income. Plus you run into BIK issues if you live in a property owned by your ltd company.Oh, and if I did set up as a Ltd Company, whose name goes on the deeds?
Hopefully that all makes sense!
If you are a lower rate taxpayer there does not seem to be a benefit. This would make sense however in future if you are making enough profit for tax benefit to be worthwhile.
If you bought a property via a ltd company, the ltd company name would be registered as owner on the deeds/land registry
As has been said, if the property is genuinely intended to be your Main Residence (and I really mean "genuinely"), then it would be the height of madness to put the property into a limited company as you would lose the single greatest tax break available to an individual in the UK, mainly the fact that you don't pay tax on any profit you make when you sell your own home..
You do need to be careful - if HMRC get any hint at all that the property was bought with the intention of doing it up and selling it on, then it CANNOT be you main residence, even if you make an attempt to show that you lived in it.
There have been a few tax cases already where individuals claimed a home they were developing was their Main Residence but HMRC disagreed.
In fact, if you are buying a property with the intention of doing it up and selling it quite quickly, then it wouldn't even be considered a Capital Gains type transaction, but a transaction as part of the trading activity of a sole trader property developer - which would be subject to Income Tax (and NI).
Tread carefully.
You do need to be careful - if HMRC get any hint at all that the property was bought with the intention of doing it up and selling it on, then it CANNOT be you main residence, even if you make an attempt to show that you lived in it.
There have been a few tax cases already where individuals claimed a home they were developing was their Main Residence but HMRC disagreed.
In fact, if you are buying a property with the intention of doing it up and selling it quite quickly, then it wouldn't even be considered a Capital Gains type transaction, but a transaction as part of the trading activity of a sole trader property developer - which would be subject to Income Tax (and NI).
Tread carefully.
If you are going to live in it, make sure you register stuff like driving licence, bank account etc get on the electoral role.
HMRC will take a dim view eventually if you keep flipping houses every six months, however at the start don't have a Ltd company proceed as a couple buying a fixer upper and moving on with their life.
IN the future when you have done three or more houses in three years then go ahead but for now particularly as it's toe in the water you really don't need to.
Good luck
HMRC will take a dim view eventually if you keep flipping houses every six months, however at the start don't have a Ltd company proceed as a couple buying a fixer upper and moving on with their life.
IN the future when you have done three or more houses in three years then go ahead but for now particularly as it's toe in the water you really don't need to.
Good luck
Dragging this one up again. I don't own a flat currently and a mate of mine owns 2. We're looking into buying a place to renovate. I have the funds to buy, he has the skills to renovate. I work in London and the flat will likely be in Bristol so whilst it will be my only flat, I'll be living in rented accommodation in London during the week. Am I better off buying it with a Ltd Co?
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