Company buying property

kanoute696

I have a Scenario -

I own a company - The company pays me a wage (simple so far!)At the moment in the company account is X amount of Euros not taxed yet.

Say My company wants to buy a small apartment in the UK - It will be stamp duty exempt as its only gonna cost £140K. I want to use the money in my company account (is this possible?) ... where are the downfalls here?.. Also, if I wanted to rent out this particular apartment, Is the rent taxed or VAT related?..
This is only the start by the way!!.. but lets go with this first. My Terminology isnt the best so.... Any comments are appreciated... Thank you

antoinolachtnai

There are capital gains tax issues. When you sell the property, you will have to pay CGT when the property is sold, and you will have to pay again when you take the money out of the company, and this double whack could reduce your previous gain. You really need to talk with a tax adviser with UK/Ireland experience. The most tax-efficient way to do this may be with some sort of personal pension. I don't have direct experience, but I have heard that these things are tricky to unwind if they aren't set up the right way.

kanoute696

Reply appreciated -
Selling is a different story alright - Yes CGT - but whats the percentage?..
Also, you can start something called a personal property pension?.. dont know much about it but it mean you pick the property yourself at your own risk...but you get to take money out of your company this way.
To add to this, The plan is not to sell the property but to add a few more...
I intend to talk to a Tax expert over Christmas, And I will definitely update this post after but I need some knowledge going in .... Cheers

antoinolachtnai

well, the rate now doesn't matter. It's when you try to break it up on retirement. You're going to sell it eventually. It comes quicker than you think (I hear). As I understand it, you can do the personal property pension, you can invest in UK property, and you can 'gear' it. These are relatively new innovations. It is important to understand the concept of gearing before you go to see the adviser. Also, bear in mind, is property in the UK really the best investment for you? It is not a risk-free business.

kanoute696

regardless of whether the UK is right or not, is beside the point, I just used it as an example. But your right, I guess breaking it up on retirement is one of the issues Im trying to sort out. What do you mean by Gearing it exactly?..

Also, Expensing this company -
What kind of stuff can I expense on an everyday basis?..
Refurbs\Travel\Food\Clothing\ etc -???? These could all be related to the company..no?..

Thanks for the reply by the way!

maxymo

Hi kanoute696,

I am in similar situation now and just wondering if you finally bought your property from the limited company or got some valuable information about it?

Thanks for any information.

VonBeanie

Owning a property in a trading company is a bad idea in my view. You will have to pay corporation tax on the profit, and then income tax on any dividends that are paid out. If it ever comes to selling the trading business, the property will be an unwelcome complication that reduces the company value. I'd expect putting the cash in a self administered pension scheme and having the pension scheme buy the property is far more tax efficient.

VAT wise. Not sure on UK. In Ireland, it would be a VAT Exempt activity so you would not charge VAT on the rent, but cant claim VAT inputs either and you would need adequate systems to separate the VAT inputs between the trading and the VAT exempt activities.

Visit a financial advisor before doing anything like this....

maxymo

Thanks VonBeanie for your reply, really appreciate it!

I am aware of the potential taxes involved however in my case I am not buying the property to let it but to live on it as a benefit in kind (I would be paying PAYE tax for those benefit in kind). I am in the path of getting financial advice of course as all I have in my head now are just ideas that need to validate with a professional and here in the forum to get other points of view and information.

Rental income tax and dividends are not main concern. In the case of selling the property one day, I am not domiciled in Ireland and can get profits after paying corporation tax offshore without paying any additional tax, of course that money wouldn't come back to Ireland.

Getting back to the topic of buying from a company although taxes are involved, after doing the maths I see more taxes to be paid in case I buy as an individual with mortgage, and I say mortgage because after getting cut by 50% in order to get the salary there wouldn't be enough money to buy anything, and mortgage means interests so the cost is getting increased.

Roughly the maths I am doing is as follows:

Let's says, my company has 250k profits in bank

Property value €220k (something modest in the country side)

Via mortgage as individual
1. Get 250k as a dividend in Ireland. Pay 40% income tax which I finally get in my pocket 150k only with a cost of 100k in tax!!
2. Get 10-years morgage of 70k with repayments of €670 per month. Total cost 80k
3. Mortgage protection. 10 per month during 10 years. 1.2k
4. Income tax paid during 10 years to get the mortgage repayments. if taxed at 40% to €670 my gross salary will need to be €1116. So tax per month is 446, total in 10 years is: 53k only in income tax!

Total cost
150k + 100k + 80k + 1.2k + 53k = 384k

Via limited company
1. Pay 12.5% corporation tax and get 220k to buy the property. Cost of 30k in corportation tax.
2. I pay as PAYE tax the benefit in kind as I will be living in the property. I read this will need to be calculated based in the estimate rent value which for a 250k property let's say is €1500. Then PAYE tax (40%) on €1500 is €600 per month. In 10 years ending paying: 72k

Total cost: 220k + 30k + 72k = 322k

After 10 years of buying the property, it is 60k cheaper getting it under a limited company. after that it seems to become less attractive and the option of buying the peroperty as individual seems better, e.g. 20+ years living in the property.

Am I missing anything else important?

The Pension Scheme is something I want to research more, do I need to wait to get retaired in order to buy the property? if so no option for me as I am in my 30s only.

davindub

maxymo wrote: »

Thanks VonBeanie for your reply, really appreciate it!

I am aware of the potential taxes involved however in my case I am not buying the property to let it but to live on it as a benefit in kind (I would be paying PAYE tax for those benefit in kind). I am in the path of getting financial advice of course as all I have in my head now are just ideas that need to validate with a professional and here in the forum to get other points of view and information.

Rental income tax and dividends are not main concern. In the case of selling the property one day, I am not domiciled in Ireland and can get profits after paying corporation tax offshore without paying any additional tax, of course that money wouldn't come back to Ireland.

Getting back to the topic of buying from a company although taxes are involved, after doing the maths I see more taxes to be paid in case I buy as an individual with mortgage, and I say mortgage because after getting cut by 50% in order to get the salary there wouldn't be enough money to buy anything, and mortgage means interests so the cost is getting increased.

Roughly the maths I am doing is as follows:

Let's says, my company has 250k profits in bank

Property value €220k (something modest in the country side)

Via mortgage as individual
1. Get 250k as a dividend in Ireland. Pay 40% income tax which I finally get in my pocket 150k only with a cost of 100k in tax!!
2. Get 10-years morgage of 70k with repayments of €670 per month. Total cost 80k
3. Mortgage protection. 10 per month during 10 years. 1.2k
4. Income tax paid during 10 years to get the mortgage repayments. if taxed at 40% to €670 my gross salary will need to be €1116. So tax per month is 446, total in 10 years is: 53k only in income tax!

Total cost
150k + 100k + 80k + 1.2k + 53k = 384k

Via limited company
1. Pay 12.5% corporation tax and get 220k to buy the property. Cost of 30k in corportation tax.
2. I pay as PAYE tax the benefit in kind as I will be living in the property. I read this will need to be calculated based in the estimate rent value which for a 250k property let's say is €1500. Then PAYE tax (40%) on €1500 is €600 per month. In 10 years ending paying: 72k

Total cost: 220k + 30k + 72k = 322k

After 10 years of buying the property, it is 60k cheaper getting it under a limited company. after that it seems to become less attractive and the option of buying the peroperty as individual seems better, e.g. 20+ years living in the property.

Am I missing anything else important?

The Pension Scheme is something I want to research more, do I need to wait to get retaired in order to buy the property? if so no option for me as I am in my 30s only.

I assume you are a company director and the company probably meets the definition of a closed company, short of it is you will pay income tax on the value of the house.

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-13/13-01-01.pdf

Lumen

You can't live in a property owned by your company or pension. It has to be arms length.

If that's the reason you are choosing property as an asset class then think again.

If this idea worked then everyone would do it.

maxymo

Thanks Davindub and Lumen, good points, I didnt know about that, will take it into account however dont give up, there must be a way to pay my home without getting stolen 50% of my hard work, every day I realize more at what level of slavery we all are!

davindub

maxymo wrote: »

Thanks Davindub and Lumen, good points, I didnt know about that, will take it into account however dont give up, there must be a way to pay my home without getting stolen 50% of my hard work, every day I realize more at what level of slavery we all are!

Sadly, this is probably not going to happen But get a chartered tax advisor, between pensions schemes and retirement plans, you can reduce total tax rather than the funds you need to release for the purchase of one asset.

Just came across this thread - realise it's over a year old!

The OP was talking about his company buying an apartment which seemed to have tax implications, according to replies.

What if the company buys office space? Could it buy more than it needs, rent it out to cover the mortgage on the office, and eventually own a decent asset?

Or is it just better to put money into a pension if you have profits?

Caranica

It's 12 years old

Caranica

Caranica wrote: »

It's 12 years old

I thought it was 2016 rather than 2006!