Can my Ltd company buy an investment property

xabi

I spotted an apartment on a student block for sale with a projected rental income of 12k. Can my Ltd company take a mortgage on the apartment and rent it out as an investment? I wouldn't plan on taking any personal income from it. What are the benefits / pitfalls in such an investment?

ixus

xabi wrote: »

I spotted an apartment on a student block for sale with a projected rental income of 12k. Can my Ltd company take a mortgage on the apartment and rent it out as an investment? I wouldn't plan on taking any personal income from it. What are the benefits / pitfalls in such an investment?

Yes. It's 25% tax and a surcharge on money not reinvested i think.

http://www.revenue.ie/en/tax/ct/

Some investors would have a Holding company that owns two other companies. One for your business and one for investment in properties. Keeps liabilities apart. If you had it bundled together and got into trouble with mortgage, your business could be in trouble too.

Keep them apart and it's worth engaging a tax advisor to learn a few things a long the way.

daheff

you need to check the Memos & Arts of your company too. They say what activities the company can engage in. If its not allowed under that, then no the company cannot make the purchase (regardless as to whether you can get a mortgage or not).

However, that said, most co's Memos & arts have a 'Bell house' clause which basically says you can do anything.


Quick trip to co sec is in order here.

thegolfer

daheff wrote: »

you need to check the Memos & Arts of your company too. They say what activities the company can engage in. If its not allowed under that, then no the company cannot make the purchase (regardless as to whether you can get a mortgage or not).

However, that said, most co's Memos & arts have a 'Bell house' clause which basically says you can do anything.


Quick trip to co sec is in order here.

With the updated companies act 2014, would the ultra vires issue not be resolved with the new company constitution being issued and Co version to a new company. Effectively the company having unlimited direction.

Pawwed Rig

It may be more difficult to finance it in a standalone company.

TiGeR KiNgS

I believe one of the pitfalls is the double taxation of CGT with property in Ltd companies.
1. CGT on sale of property
2. CGT on disposal of company shares.

As I understand it conventional wisdom is to hold property personally and avoid putting property into company hands.

Someone might confirm this.

ixus

Yes. But, if he takes the cash out of company, it's taxed unless tax planning (pension, retirement relief etc engaged). Initial taxation at 12.5% allows for a reduction in LTV i.e. 100k @ 12.5%=87.5k against 100k @ circa 50% paye etc =50k to use.

celtic_oz

take the cash out of your ltd company as a self administered directors pension tax free

save pension until you can buy property with small mortgage

buy property and enjoy rent tax free into your pension

Islander13

There is only one reason to buy property in a limited company if you are a private individual. And that is if you already had a material amount of cash "trapped" in a company that you cannot remove without triggering tax. Its madness to use a company if not in this scenario. Its not just the 25% company tax if earnings are not removed. Look up the Close company surcharge which is another 15% if you wanted to keep the cash in to pay debt down for example.

Buy in personal name

ixus

@islander, but then he starts at 48/50k after paye,prsi &usc against 87.5k after corp tax. It's not so clear.

The pension scheme works also but no access to it for long time.

ixus

ixus wrote: »

@islander, but then he starts at 48/50k after paye,prsi &usc against 87.5k after corp tax. It's not so clear.

The pension scheme works also but no access to it for long time.

The OP mentions mortgage. He'll (his company) be borrowing to buy.
Makes little to no sense IMO over a private BTL. Which makes little sense too IMO, borrowing to invest is looney IMO.

ixus

I agree on borrowing to invest to an extent. If i was asked about the current state of property market I would have a very negative view but, that wasn't the question. (My track record on here would be pretty clear on property thoughts back to 2005/6).

Anyway. Lets look at a rough sample in terms of leverage on Company v Personal.

Lets say apartment is 140k at 12k pm rent.

Lets say he has 100k in company for earnings this year and not already paid 12.5% on it before paying out to himself.

Pay himself 100k on top of salary already. Pays approx 50% tax on this. So, has 50k for a 140k apartment.

Using UB rates:

140k at 50k down @ 4.7% over 15 yrs = 725pm
Pays 36k interest over 15 yrs

Company pays 12.5% corp tax = 87.5k

140k at 87.5k down @ 4.5% over 25yrs = 400pm.
Pays 20k interest over 15yrs.

With the surplus after taxation less deductibles, can pay down the principal quicker via company.

87.5k - 50k= 37.5k
36k - 20k = 16k
53.5k saved on initial tax amd interest paid. Not bad.

More efficient option is through a pension whereby no corp tax is incurred on the 100k. Drawback is access to funds if needed.

Info on taxation etc:

www.maneelymccann.ie/factsheets/personal-tax/property-investment-buy-to-let

ixus

ixus wrote: »

.............

Lets say he has 100k in company for earnings this year and not already paid 12.5% on it before paying out to himself. ...............

but I'd say he doesn't

ixus

Property v pension. I don't think it's a great article but it certainly helps raise some questions.

http://www.irishtimes.com/business/personal-finance/property-or-a-pension-where-can-you-get-a-better-return-1.2945443

ixus

ixus wrote: »

Property v pension. I don't think it's a great article but it certainly helps raise some questions.

http://www.irishtimes.com/business/personal-finance/property-or-a-pension-where-can-you-get-a-better-return-1.2945443

Woeful article really.
If he's working at his age if going the pension route he should use the €85k mentioned to live on and lash as much as he can into a pension over a few+ years to get €150k in there if paying tax at the higher rate.

the €85k would than be €300k in 15 years if 5% net growth achieved per annum in the pension.