Company buying a house.

Kickintheass

We are a family run business and a ltd company
We have some spare cash in our deposit acc and are thinking of investing in a house to rent out and maybe sell when the prices increase.
What are the advantages/ disadvantages? Taxes and vat?
Thanks

HcksawJimDuggan

Kickintheass wrote: »

We are a family run business and a ltd company
We have some spare cash in our deposit acc and are thinking of investing in a house to rent out and maybe sell when the prices increase.
What are the advantages/ disadvantages? Taxes and vat?
Thanks

Main issues I can think of include:

The rental income will effectively be taxed twice if the directors wish to draw the income out of the company (assuming no directors current account balance)
- rental income earned through the company will be taxed at 25%. Directors will pay tax at marginal rate to extract funds from the company.

Same as extracting any gain on the eventual sale of the property. Company will have a chargeable gain and directors will pay tax at marginal rate to extract funds from the company.

Close company surcharge of 20% on undistributed investment income i.e. rental income

You mention it is a family run business. Holding investment property in the company will have implications for claiming CGT/CAT reliefs in the event of succession planning.

The above are only a number of considerations and are based on assumptions so best to sit down with your accountant to get a better understanding of how it may affect your personal circumstances.

Legend100

property threads are banned here but I'll give you one bit of advice in its simplest form

......bad idea for a whole host of tax reasons

EDIT: hacskaw has alluded to a few of them above (got in just before me)

dbran

Hi

GIVEN THAT THIS IS A HYPOTHETICAL DISCUSSION

As mentioned above it is usually a bad idea to put property into a company, but not always.

In this case the company already has pot loads of cash within the company. To take this out will require it to be paid as a salary anyway. At the moment it is doing nothing except probably earning a very low rate of interest.

The company will be subject to a surcharge correct, which will mean it pays corporation tax at effectively 25% +20% if it does not pay it out as a dividend but the personal rate could be as high as 52%.

There is also the relief on paying CGT on property acquisitions provided you hold it for 7 years.

So the answer is......maybe. You need to sit down with your accountant and discuss the ins and outs of your particular situation.

dbran

Mr. Incognito

Property thread.

Closed.

Read the charter, and seriously, an internet forum for specialised tax advice?