Hello users of accounting web,
My aim is to purchase either one or two properties (cash / no mortgage) total value of around £130’000 in the next 12-18 months via a new limited company (and continuing to acquire them thereafter although my income will fall sharply when I enter training next August and thus at a much slower pace).
The majority of the money will be accumulated within my contracting company (company A) over this year (profitable company with no debts). This money will be left to accumulate and I only will be withdrawing my tax free allowance/ expenses maximising savings and paying only the corporation tax of 20%. The current plan is to open a separate limited company (company B) for property investment and arrange an interest free loan between the companies, by transferring the funds between these companies I will be able to invest in / acquire properties without having to pay high tax rates on dividends by withdrawing them as income. Transfer pricing legislation enforces the ‘arm’s length principle’ between connected parties (e.g. companies sharing directors) meaning lending should be carried out as it would among independent companies under comparable conditions and thus a repayment schedule with interest would be appropriate however the Small and medium exemption rules would apply to my companies (small company being defined as less than 50 employees and an annual turnover less than £10’000’000).
Have I interpreted this correctly/ is this legitimate way of transferring money between companies and could it be done multiple times? Can anyone see a better option possibly one limited company doing two things? is having a separate limited company the best way to go or at least a reasonable way to go? (as there are benefits regarding having my GF as an equal director for company B being a low tax payer and indeed she would also be investing in the company and could have her 5''000 allowance from april).
Any help would be greatly appreciated