Start Ltd company and acquire own apartment

africates

Hi,
Is it possible to set up LTD company and transfer (sell?) own property there in order to rent it out?
Thanks
p

davindub

africates wrote: »

Hi,
Is it possible to set up LTD company and transfer (sell?) own property there in order to rent it out?
Thanks
p

Yes it is possible, not advised in most cirumstances but possible.

Talk to a tax advisor but in effect after the transfer, taxable rental income is taxed at 25%, an additional surcharge on undistributed income and then you pay your personal tax on any distributions.

mrawkward

Why would you want to do this?

africates

Thanks. I am just looking for my options really. We (me and my wife) are owner of an apartment (no mortgage) for past 6 years and are now buying a house. We wanted to leave the apartment and rent it out. However we realised it may not pay if we would want to sell the apartment in few years. I.e (figures are for illustration only) we bought a flat for 100k in 2011 which is now worth 200k. If we sell it today we don't pay CGT. If we sell it in 6 years (6 years sole residence + 6 years rented) we are paying half of the tax (100k gain x 33% = 33k / 2 = 16,5k).
If we sell the apartment to LTD now we are not paying CGT and if LTD sells it in 6 years for the same price which was acquired there is no CGT either. (if value rises above 200k we will pay CGD on the difference starting from 200k). Am I right?

mrawkward

africates wrote: »

Thanks. I am just looking for my options really. We (me and my wife) are owner of an apartment (no mortgage) for past 6 years and are now buying a house. We wanted to leave the apartment and rent it out. However we realised it may not pay if we would want to sell the apartment in few years. I.e (figures are for illustration only) we bought a flat for 100k in 2011 which is now worth 200k. If we sell it today we don't pay CGT. If we sell it in 6 years (6 years sole residence + 6 years rented) we are paying half of the tax (100k gain x 33% = 33k / 2 = 16,5k).
If we sell the apartment to LTD now we are not paying CGT and if LTD sells it in 6 years for the same price which was acquired there is no CGT either. (if value rises above 200k we will pay CGD on the difference starting from 200k). Am I right?

NO!! If you sell/transfer it you will have to do all the legals + stamp duty at current market value. If it doubles in value over the holding period, the company will be liable for CGT on any gain and you will pay CGT on any balance. This is addition to the income taxes outlined above in post #2. Unless you are buying you new house for cash, use the proceeds to reduce debt and interest costs. If buying for cash, just rent it out yourself, if you fancy even being in such a lousy business!!

africates

Hmm... but I own the apartment already as sole residence. Bought in 2001 for 100k will now sell to LTD for 200k (current market value) so I will be exempt from CGT. LTD will buy it for 200k now and sell it for 210k in 6 years.... so LTD will pay CGT only on 10k?

mrawkward

As it is a sale to a connected party, you need top notch taxation advice as you could easily end up with the worst of both worlds.

africates

I bet I'll be better of selling that apartment now and buy another one for the same price to rent it out.... will save me a lot in CGT. I thought there are other legal ways to do it. If not LTD maybe change of ownership from joint to my wife only and pay all legal fees and stamp duty but CGT will only be from now on. Or maybe transfer it to pension. They say property rental prices are high but it doesn't seem to pay to be landlord at all.

ACADasltiv

If your end goal here is to sell the property in six years and then dissolve the LTD company then this is a non-runner.

For the six years you're renting the property you will be paying 25% corporation tax, then you will pay a close company surcharge of 20%. Then you take the profits out of the Company and you're paying PAYE, PRSI & USC on those earnings.

Whatever it will save you in CGT it will more than cost you in different taxes. And remember, you will need to file financial statements for the Company every year - if you don't plan on preparing & filing them yourself then you would struggle to find an accountant to sign off on them for less than €1,500-€2,000 per year.

africates

Thanks for your reply. Is there any other way to protect the gain we acquired during sole residence then? I have no problem paying CGT on gain between now and the future sell date...

mrawkward

africates wrote: »

Thanks for your reply. Is there any other way to protect the gain we acquired during sole residence then? I have no problem paying CGT on gain between now and the future sell date...

cash out!

africates

but I like the apartment

mrawkward

africates wrote: »

but I like the apartment

Enough to take the hit? We all get to pay for our pleasures

HeidiHeidi

africates wrote: »

Thanks for your reply. Is there any other way to protect the gain we acquired during sole residence then? I have no problem paying CGT on gain between now and the future sell date...

Maybe I'm missing something, or maybe I'm wrong - but isn't it the case that you'll only ever pay CGT for the period during which the apartment wasn't your primary residence?

So going by the quoted post, you've nothing to worry about?

srsly78

OP the rules are setup so you won't get any advantage from this. Also the rules are so complicated you need to pay loads for advice, or end up getting fined for doing it wrong. So not worth it.

africates

HeidiHeidi wrote: »

Maybe I'm missing something, or maybe I'm wrong - but isn't it the case that you'll only ever pay CGT for the period during which the apartment wasn't your primary residence?

So going by the quoted post, you've nothing to worry about?

I was thinking the same the whole time however it seems that it is calculated the way it is not beneficial to taxpayer... I.e. they do not take in account when the property gained in value... I.e 6 years sole residency gained in value 100k and 6 years renting lost 20k in value I will still need to pay 6/12 of CGT on 80k gain..... or I will be delighted if someone can proof me wrong!

ACADasltiv

I'm not sure how you see it as not being beneficial to the taxpayer - you make €80k and so you pay tax on it.

€100k x 6/12 x 33% = €16,500 you're paying for earning €100k. If you earned €100k via employment you would be paying approx. €40k tax on it.

exaisle

ACADasltiv wrote: »

I'm not sure how you see it as not being beneficial to the taxpayer - you make €80k and so you pay tax on it.

€100k x 6/12 x 33% = €16,500 you're paying for earning €100k. If you earned €100k via employment you would be paying approx. €40k tax on it.

You're overstating the CGT liability. If OP bought it in 2011 and he now rents it and sells in 6 years time for €200k and the rates remain the same, then the liability is about €12,912.
He's also deriving income from it for the six years....

africates

ACADasltiv wrote: »

I'm not sure how you see it as not being beneficial to the taxpayer - you make €80k and so you pay tax on it.

€100k x 6/12 x 33% = €16,500 you're paying for earning €100k. If you earned €100k via employment you would be paying approx. €40k tax on it.

Thanks. My point is a bit different. I.e. I can sell the property now for 200k and cash out 100k gain without any tax. Spend this 200k to buy similar property and rent it out. I will then only pay tax on the gain from now on till future sale. This should be reflected in tax law as it is doable anyway. BTW... if I rent it out I will pay tax on it anyway.... 51% to be exact

ACADasltiv

exaisle wrote: »

You're overstating the CGT liability. If OP bought it in 2001 and he now rents it and sells in 6 years time for €200k and the rates remain the same, then the liability is about €12,912.
He's also deriving income from it for the six years....

The OP didn't buy in 2001, they bought in 2011.

They also wouldn't be paying interest on €200k for the mortgage on their next property and unless they have an after tax rental yield of 3-4% then it wouldn't be worth renting out.

africates wrote: »

Thanks. My point is a bit different. I.e. I can sell the property now for 200k and cash out 100k gain without any tax. Spend this 200k to buy similar property and rent it out. I will then only pay tax on the gain from now on till future sale. This should be reflected in tax law as it is doable anyway. BTW... if I rent it out I will pay tax on it anyway.... 51% to be exact

Most people when selling the PPR will be doing so to either upgrade, move to a new area etc. and allowing them to sell tax free means that they can't utilise any gain they've made to enable them to purchase a better home for them to live in.

You're able to take advantage of tax law which is meant to help people move home by selling the property now and paying no tax on it.

If you rent the apartment for €16k per year and pay half of that in tax then you're receiving €8k per year income. Over 6 years this is €48,000 you've made out of it, so paying €16,500 in CGT when you sell it after the 6 years isn't too bad.

Or you could sell it now, earn no money from it and also pay no tax on it.

exaisle

ACADasltiv wrote: »

The OP didn't buy in 2001, they bought in 2011.

Sorry...the "2001" was a typo but the CGT liability wasn't.

If it was bought in 2011, the CGT is about €12,912.

africates

ACADasltiv wrote: »

You're able to take advantage of tax law which is meant to help people move home by selling the property now and paying no tax on it.

Good point... fair enough!

I think I may keep it and as you said paying 16k when earning 48k is still OK...

When I will be selling it will they take in consideration that I upgraded i.e. new kitchen, underfloor heating, new bathroom, etc. however I do not have all receipts for these?

Also my wife is planning to not return to work after maternity to look after our kids.... Can I utilize her 20% tax basket somehow in relation to this property?

pilly

You need a qualified tax advisor OP

exaisle

africates wrote: »

Good point... fair enough!

I think I may keep it and as you said paying 16k when earning 48k is still OK...

When I will be selling it will they take in consideration that I upgraded i.e. new kitchen, underfloor heating, new bathroom, etc. however I do not have all receipts for these?

Also my wife is planning to not return to work after maternity to look after our kids.... Can I utilize her 20% tax basket somehow in relation to this property?

Firstly, you won't earn €48k. Allow 5-10% for repairs, admin and replacement of assets. Over six years I'd expect your taxable profits to be around €44k.

When you sell, you can take account of improvements, and these would reduce the CGT liability. Even if you don't have receipts, you may have paid for various bits using a debit or credit card so the details will be on your statements. Try not to make blind estimates. A visit to a tax consultant or accountant is a good idea here.

If your wife is not returning to work, yes, you can use her tax credits and bands to reduce your own liability whether or not you rent the property. If you rent and it's jointly owned, you'll both be assessed on the profits. Maybe stick a thread in the Taxation forum asking the same question and you'll get a more complete response. However, as always, you'll be better off visiting an accountant or tax consultant. They'll generally pay for themselves.

africates

My wife had appointment today with legal advisor in citizens information bureau and he told her that if we bought property for 100k which is now worth 200k (and stops being our primary residence now) and if we decide to sell in X years when the property will be worth 210k we will pay CGT only on 10k.

She then went to Revenue to conform this and they had no clue and started to seek information online. Couldn't find anything specific they told her that everything is published and she has to search it herself.

I will write a letter to Revenue now asking them to clarify as all the examples on their page are for investment properties.

africates

OK I found examples etc on the Revenue page however these are calculated as proportions in relation to primary residence and period of ownership..... however If I good understand the gain may be up for dispute and assessed by valuer rather than calculated using proportions?

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-07-03.pdf

davindub

africates wrote: »

OK I found examples etc on the Revenue page however these are calculated as proportions in relation to primary residence and period of ownership..... however If I good understand the gain may be up for dispute and assessed by valuer rather than calculated using proportions?

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-07-03.pdf

Simply put:

Sale price - purchase price - allowed enhancement exp = gain

CGT tax base = gain * (( owner occupied years + last year of ownership ) / years property held

CGT 33% of tax base.

Seriously talk to a chartered tax advisor about this and other financial planning.


OMV is substituted for sale price where transaction is not arms length, e.g. to a sibling.

mrawkward

Always cruising for a bruising when one reads bits of Revenue that suit one's own position and ignores the anti-avoidance measures in place. OP has a chance to make a nice tax free gain but wants more.....!

africates

It is so easy to judge people not knowing their circumstances... I dont want more... just what I am entitled to by law!

Caranica

africates wrote: »

but I like the apartment

If you like the apartment sell it. Renting will break your heart. Been there, done that, paid the tax bills. Was in a similar situation to you equity wise, opted to rent and pay tax/cgt. What we didn't allow for was the massive heartbreaking damage a surgeon and his family with impeccable references would do to a home we'd loved. Cost us a fortune to repair to make the property saleable