Forming a company...then doing nothing with it for a year?

[princeperch]

So as part of a longer term strategy I would like to try and build up a way of obtaining a (relatively) passive income for later in life

One way I want to try and achieve that is by buying and holding modest one beds and studio flats via a limited company.

This thread isn't really to discuss the viability of such a scheme as I'm still working out all the finer details. In short tho these would be relatively cheap flats, purchased without a mortgage, and held within a limited company. The company would then either hand them over on a guaranteed rent arrangement to the local authority or rent via a local agent.

The issue with these cheaper properties is that they often come up via auction. I don't want to buy via an auction because very often that comes with a crippling obligation to pay a fee/premium/document fee to the auction house.

So when the cheaper ones come up they normally go fairly quickly.

I am not in a position yet to start to buy these properties. I will be in about a year or so. When they come up I will need to be ready to go.

So I want to set up a company now.

I understand that I can set up a company now and as long as it doesn't trade in any way , I can do so, and the powers that be won't assume it's trading unless I tell them so. So I can set it up now, have all the paperwork in order, and I then when I am ready to go, set up a bank account, fund it and start doing what I want to do. As long as it isn't trading then there is no obligation for me to file any sort of return or incur any significant expenses in relation to this company? Can anyone tell me if in short my understanding is correct?

Ta so much

[Glasgowrob]

personally i wouldnt bother doing anything until your ready,

you can set up a new LTD co same day with no hassle so i'd suggest just waiting till your ready to go

[JulianPH]

I would go with Glasgowrob on this as you can set one up off the shelf whenever you like.

However, it may be the case that by doing this now you are physiologically setting the wheels in motion to meet your goals here. In this case it could be worthwhile to do it now as the starting point of your journey.

As an aside, you will have an extra year of establishment when it comes to approaching the local authority (but only a year and with no accounts to show for it).

Any paid up share capital/investments made towards future purposes may make a difference though.

I should add that this is not my area of knowledge!

[akirk]

Even a dormant company that has never traded still has to do an annual return (3 minutes online and £13)

[Cheib]

I’d set it up now....setting up a bank account for a new company isn’t as easy as it was.....at least it wasn’t for me when I set up a new company earlier this year but we also needed a Euro bank account which caused a lot of complications. I took about three months to get the bank account set up because of the sector we’ll be operating in and the currency requirements. I am guessing some banks wont be keen on property companies so I’d start now.

[JulianPH]

Cheib said:

I’d set it up now....setting up a bank account for a new company isn’t as easy as it was.....at least it wasn’t for me when I set up a new company earlier this year but we also needed a Euro bank account which caused a lot of complications. I took about three months to get the bank account set up because of the sector we’ll be operating in and the currency requirements. I am guessing some banks wont be keen on property companies so I’d start now.

^^^ That is a very good point.

[Heres Johnny]

I can vouche for setting up a company up in a day - I've done it myself - it would be worth working out how even if you don't pull the trigger.

The bank account was easy for me, I used my personal banking bank and I'd had a previous company bank account wth them, that just took one phone phone call, although the business and borrowing requirements can mean a face to face (but I think you're saying cash so not an issue).

But for both, as long as you knew a month in advance I doubt you'd have a problem.

A further consideration for you might be to have a asset holding company and a operating company that deals with the public and other bodies with respect to the letting and just pays the asset holding company an amount each year (kind of subletting to yourself). The asset holding company shields the assets from issues in the operating company to the point that a claim against the operating company can make that company go bump but you've not lost the properties, although some contracts may require the assets to be in that company. A nursing home I own a large chunk in operates that way. Would be worth some advice as the upsides are easy to see but the downsides may constrain your ability to operate

[princeperch]

Chieb and julianph (and others) excellent points.

I especially hadn't thought about how long it would take to open the accounts. Nor had I thought about the psychology kick start forming the company would be.

I'll get started tonight. I've been thinking about this for a few years, now it's time for some action!

[Cheib]

If you want to VAT register the company you need a bank account though if you do set one up you need to file a quarterly nil return otherwise HMRC will fine you £360 automatically. Guess how I found that out! Retrospectively filed so was let off the fine....

[98elise]

Glasgowrob said:

personally i wouldnt bother doing anything until your ready,

you can set up a new LTD co same day with no hassle so i'd suggest just waiting till your ready to go

Agreed. Both times I've set up a Ltd co it's been simple and quick. It took me longer to think of a name for the companies

[JBM78]

Cheib said:

If you want to VAT register the company you need a bank account though if you do set one up you need to file a quarterly nil return otherwise HMRC will fine you £360 automatically. Guess how I found that out! Retrospectively filed so was let off the fine....

Not true - you don't need a bank account to VAT register a company

I do this frequently for newly registered companies without bank accounts

High St banks may take a few weeks to get the account sorted, this is where the delays are! VAT registration usually takes a week or so but is usually not required immediately

[Condi]

Sorry to slightly hijack your thread, but how does this work - tax wise - with getting money into and out of the company? Is it a case of injecting funds via a directors loan, then profit held in the company is tax free until it is taken out as dividends or as a salary? Finally, do LTD companies pay a larger mortgage interest rate than an individual, although I assume that is tax-deductible?

[Mattt]

Also curious as to why you feel the Ltd route is the best option?

[princeperch]

Various reasons really - mostly to mitigate tax.

You can also leave the money building up in the company and then use those funds to buy the next one etc.

[Heres Johnny]

princeperch said:

Various reasons really - mostly to mitigate tax.

You can also leave the money building up in the company and then use those funds to buy the next one etc.

You still pay 19% corporation tax on the profit even if you let the balance sheet build up.

I believe the usual benefit of property in a limited company is you can offset the interest payments against tax, but you’re not borrowing.

[princeperch]

Heres Johnny said:

You still pay 19% corporation tax on the profit even if you let the balance sheet build up.

I believe the usual benefit of property in a limited company is you can offset the interest payments against tax, but you’re not borrowing.

Indeed

It's better to pay the corp tax than pay at my marginal tax rate

I also still squeak in to be eligible for 88 quid a month child benefit too (bizarrely) due to my pension contributions so I don't want any increase (unless it's substantial) to my personal income

[Mattt]

Considered investing in REITs through a SIPP?