Advice on rental business and cafe as one concern

ElKavo

Hi Guys,

Looking for some advice. We are in the planning (dreaming) stages of buying a property which has some residential and commercial units contained in it. There are a total of 4 residential units and 1 commercial unit currently trading as a cafe / shop.

We are looking to keep the cafe for ourselves (lease dependant) and one of the residential units to use as our home.

The remaining residential units we are hoping to let (they currently are and rents will cover the mortgage on the whole property)

We have a reasonable lump sum to put into the mortgage which would mean that our monthly repayments would be c.€1k or less. My OH is qualified as a book keeper and currently training towards a CIMA qualification so she will continue to do that if required.

Now to my question....

What would be the most tax efficient method of setting this situation up? Would we be better off to go as sole traders, ltd company or just file under form 12?I do not intend on working as a PAYE worker for someone else etc as I will be the house husband. I intend on running the cafe (during its operating season as it is a seasonal location) for approx 5 - 7 months per year. I will available for the house / children as I am in the locality and I will probably need to have seasonal staff also.

What would the benefit / drawback of each type be?

Would It be best to work for the LTD company? Is that even possible as a director of said LTD?

As I say still very early days and we have lots of time to work everything out so any advice / guidance is much appreciated.

I do intend on doing a start your own business course in the L.E.O, are they worth while doing?

Thanks

Gloomtastic!

You probably need to speak to several accountants and explain your situation to them. They may each give you totally different advice. Be careful who you work with because it will be you/your wife who will end up paying if they get it wrong.

Personally, I'd stick everything under a Limited Company. Sole Trader landlords get screwed in Ireland, companies less so. The accountant should also be able to help you raise finance.

Running a cafe is a whole different game. Have a read through this thread and see if you're still up for it.

https://www.boards.ie/vbulletin/showthread.php?t=2057278302&page=1#post91929796

ElKavo

Gloomtastic! wrote: »

You probably need to speak to several accountants and explain your situation to them. They may each give you totally different advice. Be careful who you work with because it will be you/your wife who will end up paying if they get it wrong.

Personally, I'd stick everything under a Limited Company. Sole Trader landlords get screwed in Ireland, companies less so. The accountant should also be able to help you raise finance.

Running a cafe is a whole different game. Have a read through this thread and see if you're still up for it.

https://www.boards.ie/vbulletin/showthread.php?t=2057278302&page=1#post91929796

Thanks for the feedback. I will, for sure talk to a few different accountants. I do work very closely with the hospitality industry in my current position so I know all too well the differing opinions of accountants and even revenue officials (we actually had 3 in our offices a few years ago arguing with each other over 9 and 13% rate application). The thread you mention is not anything I haven't seen for most people who want to set up these type of businesses. Nothing too scary here. The property we are looking at has the correct permission for cafe / retail already and the rental units in-place too. It's basically a walk in type deal.

We may decide to just lease the cafe too, but its always been something I would love to do myself.

Mrs OBumble

You need a limited company: its the only way to protect your home if the business goes bad.

ElKavo

Mrs OBumble wrote: »

You need a limited company: its the only way to protect your home if the business goes bad.

Straight forward advice there. Thank you.

Which actually leads me to another question. As I mentioned, there are 4 residential units. 1 we intend on keeping for our family home. We would buy the whole property on a mortgage taken by myself and the OH. Would it be prudent to transfer the remaining residential units and commercial unit to the LTD company? How feasible is it to get business finance to purchase same from us?

grahamor

ElKavo wrote: »

I do intend on doing a start your own business course in the L.E.O, are they worth while doing?

Yes, the courses are excellent. There are also follow-up courses such as networking, free 3 hour 1-1 mentoring etc.

Gloomtastic!

ElKavo wrote: »

Straight forward advice there. Thank you.

Which actually leads me to another question. As I mentioned, there are 4 residential units. 1 we intend on keeping for our family home. We would buy the whole property on a mortgage taken by myself and the OH. Would it be prudent to transfer the remaining residential units and commercial unit to the LTD company? How feasible is it to get business finance to purchase same from us?

Depends on how much deposit you have, how good your business plan is and whether the bank believe they will get all their money back or not.

Any lender will want all the residential and commercial units together to keep things simple.

antoinolachtnai

This is a pretty complex piece of real estate tax structuring. You really need professional tax (not really accounting) advice. If you are going to live in part of it, you should almost certainly have the building in your own name. This is because there is a tax benefit in relation to capital gains tax when you eventually go to sell and if you don't own it, you will have to pay tax on the value of the accommodation (because use of the property is a benefit in kind you are getting from the company). You could then sublet the rest of the building to your ltd company if you wanted to. I'm not sure if there would be any advantage in this arrangement for you. It really depends on the very narrow specifics of your tax situation. If you are operating the cafe, the best is to operate it as a limited company as a general rule, but lots of people do this as a sole trader. It really depends on how busy it is. Bear in mind that if there the cafe part of the property is subject to a lease, you will most likely have to buy out the lessee. If this is the case, you may be able to structure this acquisition so it is not subject to tax.

The bank will also have a lot of strictures on a deal like this. You need professional advice to get it all set up so everybody is satisfied.

draiochtanois

This post has been deleted.

pedroeibar1

antoinolachtnai wrote: »

This is a pretty complex piece of real estate tax structuring. You really need professional tax (not really accounting) advice.

I agree. CGT is a big issue, as are withdrawal of funds from a Ltd Co. I fail to understand how a few people feel qualified to offer definitive advice and others accept it without question.

ElKavo

antoinolachtnai wrote: »

This is a pretty complex piece of real estate tax structuring. You really need professional tax (not really accounting) advice. If you are going to live in part of it, you should almost certainly have the building in your own name. This is because there is a tax benefit in relation to capital gains tax when you eventually go to sell and if you don't own it, you will have to pay tax on the value of the accommodation (because use of the property is a benefit in kind you are getting from the company). You could then sublet the rest of the building to your ltd company if you wanted to. I'm not sure if there would be any advantage in this arrangement for you. It really depends on the very narrow specifics of your tax situation. If you are operating the cafe, the best is to operate it as a limited company as a general rule, but lots of people do this as a sole trader. It really depends on how busy it is. Bear in mind that if there the cafe part of the property is subject to a lease, you will most likely have to buy out the lessee. If this is the case, you may be able to structure this acquisition so it is not subject to tax.

The bank will also have a lot of strictures on a deal like this. You need professional advice to get it all set up so everybody is satisfied.

Thanks for your detailed reply. Our aim is to mortgage the entire property on initial purchase, we will have a minimum of 33% of the sale price. Once we are in we will then set up an ltd for the cafe (should we decide to run it and if there is currently no running lease in-place.) I think leasing the Cafe to the ltd might be the best way to go (subject to professional tax advice). I would like to have the business separate to our family home as a tax entity. The rental units, we would aim to rent these and just file under form 12. They are currently rented.

With regard to CGT, would we not just be liable for anything above what we paid for it should we keep the whole property in our own names and not transfer (sell) to the ltd?

Thanks

pedroeibar1

ElKavo wrote: »

Thanks for your detailed reply. Our aim is to mortgage the entire property on initial purchase, we will have a minimum of 33% of the sale price. Once we are in we will then set up an ltd for the cafe (should we decide to run it and if there is currently no running lease in-place.) I think leasing the Cafe to the ltd might be the best way to go (subject to professional tax advice). I would like to have the business separate to our family home as a tax entity. The rental units, we would aim to rent these and just file under form 12. They are currently rented.

With regard to CGT, would we not just be liable for anything above what we paid for it should we keep the whole property in our own names and not transfer (sell) to the ltd?

Thanks

Is this fact or a pipe dream? There is no point in you 'talking to a few different accountants' - you need to talk to just one good one. You have been very unclear as to vacant possession. Do you have mortgage approval? You do know that lenders differentiate between residential and commercial? Talking about doing a LEO course after getting involved in this is cart and horse territory.

ElKavo

pedroeibar1 wrote: »

Is this fact or a pipe dream? There is no point in you 'talking to a few different accountants' - you need to talk to just one good one. You have been very unclear as to vacant possession. Do you have mortgage approval? You do know that lenders differentiate between residential and commercial? Talking about doing a LEO course after getting involved in this is cart and horse territory.

See first post. I do not know the way it works so looking for advise. That is all.

makeandcreate

ElKavo wrote: »

See first post. I do not know the way it works so looking for advise. That is all.

I looked at a number of similar properties over the last 3 years. Numbers stacked up, had substantial deposits - over 50% plus a modest home but could not get a bank to finance. I'd double check that the bank will actually give you finance - it was the residential/business mix that meant they wouldn't finance to me as owner occupier with another unit rented out.
So I'd check this basic first.

thegolfer

The properties will be held in personal names and not a company, reason being higher tax rate, close company surcharge, and the issues of getting the property out of the company at a later stage will pose difficult in a rising property market.

Also if you are were using company assets, the family home, then thus would also cause BIK, benefit in kind issues, this higher taxes to you, and potentially cause cash flow issues over all.

So...Hold the property personallly. The cafe, set up a Ltd company and trade through this, and the company rent the property from yourselves.

One solid accountant or tax consultant should be in a position to deal with this.

Additionally as there is a commercial unit, cafe, there may be VAT on the purchase, and advice will be required on this too.

Prtb registrations also required for the rental residential units.

You'll have e to split the interest on a pro-rata Basia between residential and commercial.

80% tax deduction for residential and 100% for commercial.

No deduction for the family home element of interest.

TG

ElKavo

makeandcreate wrote: »

I looked at a number of similar properties over the last 3 years. Numbers stacked up, had substantial deposits - over 50% plus a modest home but could not get a bank to finance. I'd double check that the bank will actually give you finance - it was the residential/business mix that meant they wouldn't finance to me as owner occupier with another unit rented out.
So I'd check this basic first.

Thanks, I have a broker looking at possible options for me.

ElKavo

thegolfer wrote: »

The properties will be held in personal names and not a company, reason being higher tax rate, close company surcharge, and the issues of getting the property out of the company at a later stage will pose difficult in a rising property market.

Also if you are were using company assets, the family home, then thus would also cause BIK, benefit in kind issues, this higher taxes to you, and potentially cause cash flow issues over all.

So...Hold the property personallly. The cafe, set up a Ltd company and trade through this, and the company rent the property from yourselves.

One solid accountant or tax consultant should be in a position to deal with this.

Additionally as there is a commercial unit, cafe, there may be VAT on the purchase, and advice will be required on this too.

Prtb registrations also required for the rental residential units.

You'll have e to split the interest on a pro-rata Basia between residential and commercial.

80% tax deduction for residential and 100% for commercial.

No deduction for the family home element of interest.

TG

Thanks a million for the detailed reply, really appreciate your input on this. I will of course seek professional advice on this, just seeing if it could be a runner at all.

crkcvnirl

Hi,
What a great opportunity,

If you need bank financing to do the purchase might be tricky. You mentioned you've a broker on the case, best of luck.

You mentioned the cafe is seasonal, so can I assume you're in a Tourist type area? Have you good experience running cafes? If no, would suggest leaving the current tenant where they are in the short medium term. You'll have a mortgage to pay not much point stressing over how to pay that and run a new cafe at same time.

What's the long term rental demand like in the area? If its a tourist area and as you'll be a stay home dad you could run AirBNBs in one or two of the units and rent the other(s). Good thing with AirBNB if you don't see bookings pretty quickly you can go for long term renters instead.

Remember if you do purchase the property parcel, you'll also need funds to fit out the rental units if they're not already.

The very best of luck with it.