Please Help.
I am the owner and sole shareholder of a Limited company.
I will be buying a property for 70,000 using money loaned to the company via family members, the money will be intrest free as its a long term investment.
what i want to know is by laoning the money from family to buy the property, will this be classed as me as the director and sole shareholder as owning 70k worth of shares?
or does the 70k not count as my asset becuase the money is only loaned to the company,
basilcy i am shorterm unemployed and rent property with housing benifit help until i get another job.
i am allowed to have 16000k in savings or shares without loosing this benift, hence why i need to know if me being the sole owner of the limited company im going to be classed as having a 70k asset, even tho the money is borrowed.
Thanks
Replies (32)
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Borrowing money does not increase your net assets or those of the company.
But be careful to keep a full written record of the loans so that you can prove that that was the source of the money if you should ever need to. Ensure that the documentation clearly shows who the money is being lent to - the company or you personally.
As an aside, why are you using a company to buy property? Have you taken advice on what is the best ownership structure for you to have?
For clarification. You say "I
For clarification. You say "I will be buying a property" Do you mean the company. If so why not give each of the family members a charge over the property to protect their interest.This also reduces the perceived value of the property to just it's equity.
If YOU are buying the property using money lent to the companyy it is a totally different situation and you need to clarify to obtain further advice
Giving the lenders a charge does not alter the net assets of the company, and is not in the OP's interest to suggest if the lenders are prepared to provide their money without taking security.
It will look odd..
To present the facts as you state will certainly seem odd on any benefit application. Just what do the family members loaning £70k get out of this? You say it's a long term investment, but what is their return? If they receive interest, the company must tax it and pay HMRC. If they receive a premium on redemption then it too may be taxed. There are certainly implications for them.
I suppose that is by the by. In theory, if the Company is loaned money directly from Family members, that presents a loan. Net Assets will be nil and so your shares will remain at par value. However, given this is an investment, and the money received will be spent on a property, almost immediately your net assets is not equal to nil because of the nature of property. In that case, you will need to regularly assess the value of those shares, which are instrinsically linked to property value less loans repayable at appropriate times as required by the benefits office.
Assuming the loans are nt interest bearing and not paid back for years, and if, unfortunately, you do not obtain your new job, then in a couple of years you might be looking at a set of shares with reasonable value in them. That'll hit the benefit.
As an aside, what are you doing with the rental income in the meantime? If you extract it from the Company, that too may be income.
All a bit messy really.
You haven't answered the question about why you are buying this property through a company rather than directly in your own name. That may well be a very bad idea. To some extent that depends on what type of property it is and what it is going to be used for.
Use of property?
OP hasn't mentioned what use the property will be put. Is it for him to live in; to let out; to refurbish and sell on?
If the value of the company after the property purchase is more than £16000. you wouldn't qualify. How much will the property cost??
You will receive housing benefit based partly on a rent payable so you would have to draw up a lease with the company. If asked by the Council to see the agreement they may also ask about details of the company ownership. They will not be happy with your answers
You haven't answered the question about why you are buying this property through a company rather than directly in your own name
I suspect it may be something to do with that chap in the pub again or is it a badly thought out idea to flim flam the local authority on housing benefits
On what we are told the value of the company immediately after the purchase of the property will clearly by £Nil (assuming the purchase of the property is an arm's length transaction at full market value) as the entire purchase price is being funded by loans to the company. As time passes, any increase in the value of the property, less the latent tax thereon, will increase the value of the shares.
A better way to purchase is to do it in your own name rather than through a company. That avoids the cost (employing accountants to prepare annual accounts etc.) of running a company and the potential double tax charge if the property is sold and you want to extract the proceeds from the company.
EDIT And don't assume that your “wages” will be an allowable deduction from the rent for the purposes of calculating the company's corporation tax liability. Using a company for this is a bad idea all round. Who told you it was a good idea?
Double tax charge
Hi,
Just out of interest here, are you referring to potential profit on disposal of the house? This would go to the P&L and be taxed at 20%. I thought there would be no further tax charge if say he took a dividend from his company assuming he is a lower rate tax payer?
Thanks
Double tax charge
Just out of interest here, are you referring to potential profit on disposal of the house? This would go to the P&L and be taxed at 20%. I thought there would be no further tax charge if say he took a dividend from his company assuming he is a lower rate tax payer?
Yes of course it all depends on the amounts and whether any withdrawals from the company are income or capital.
It looks like
he wants the company to charge him rent so he can get housing benefit from the state.
If you would explain why it's not an option for the property to be in your own name we would understand better what you are trying to achieve. Up to now it's a mystery and it's difficult to advise.
My summary of the situation is:-
1. He is buying a commercial property in the ltd co on borrowed money. Initial co value therefore NIL. Doens't effect the housing benefit
2. He will not be charged rent by the company therefore it doesn't effect his housing benefit
3. His income is £7800 per annum, which I assume equates with the rent chargeable by the company and will enable him to claim other benefits eg Working Tax Credits
Perhaps the OP will confirm the above which should end the query
Yes that's my understanding of what the OP is saying but his idea that he can withdraw the entirety of the company's gross income and spend it as he pleases without tax getting in the way may well be flawed. We will be able to help him better if he will explain why he is intent on using a company for this, which seems to serve no purpose and to bring with it costs and risks that he would be better off without.
I suspect it's because he doesn't want to be seen to be the owner of a £70000 property as he would lose his housing benefit
Property ownership
The property can be owned by you. You just don't want it to because
it will be an asset your creditors can put a charge on to recover monies owed to themyou wouldn't have the director's salary to qualify you for tax creditsyou probably wouldn't be entitled to other benefits due to having a valuable assetyour family won't just give you the money you need while unemployed, you have to receive it in a way that reduces tax bills
Have I missed anything?
Other people in paid employment get £10,000 tax-free personal allowance because they are working in jobs that pay them at least that much. That is not an argument to say you should be entitled to receive £10,000 for a vague job that might not even be worth that, in an artificial arrangement set up in a way solely to benefit you and your family whilst reducing tax paid.
Negative retained earnings
From what i can tell, the company will be lossmaking from day one - even if we assume it is let every month in the year.
This is without factoring in Repairs/Legal fees/Accountancy/Landlords insurance/Rates on [potentially] vacant premises.
Unless there is significant capital growth, enough to outweigh any negative retained earnings, the parents may not even get the whole of their £70k back, nevermind a return of 11% pa.
Whilst I agree
that based on the OP description and situation it appears to be a bit of a 'tax dodge' is it illegal what the OP is proposing? Furthermore, why is he going to be a 100% shareholder himself? wouldn't it make more sense for the people who are 'loaning he company money' be the shareholders of the company. from the description, on day 1 the company will have no value (70K loan against 70K asset). rental income pays for wages. if he is not a director of the company but simply an employee, what legislation is there for HMRC to stop him being an employee. my thoughts are that it is on the grey side of ethical but tax mitigation is not illegal! see what starbucks are doing! ....
Point you accountant to this thread
Thank you freelance, I dont need to be the 100% shareholder these are just options im considering, i can make my family even shareholders for what they put in to buy the property thats not an option but i did speak to an accountant and he sugested i could just open the company not involve family as shareholders and loan the money from them, he wasnt sure if or not this would class me as having a 70k asset as the company owner? obviosuly the simple route is shares to make 100% sure.
I know 1000s of people that put fake bills into buy to tet tax return to reduce tax this is almost seen as the norm. but what im sugesting is to just pay myself a wage, only problem is what HMRC would class as a fair wage for the company to be paying me without casuing audits and issues.
Thanks
Tell him he's pants. Give him this weblink and find yourself someone who can establish that 70 - 70 = 0.