Opening a 2nd company

Opening a 2nd company

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Hi

I am the director of a two person management consultancy that has completed contract work for 10 years.

The company accumulated some reserves, which were invested in a buy to let property. A subsequent BTL has also been purchased using further reserves.

As the two parts of the business do not overlap and the property arm is now more significant, I would like to set up a 2nd company.

The first company would change to a Property Letting business and the new company would be a management consultancy.

Further, I would then like to transfer new reserves from the management consultancy to the property letting business to purchase additional properties, when reserves are available.

My reasons for doing this is not for tax planning, but to

a. limit the liability of the consulting business to the consulting activity and not include the property assets.

b. in addition, the shareholders and holdings would be different due to the parties involved.

I have read that my small companies corp tax threshold would have to be shared, which would be OK, but there will be a VAT benefit or having the consultancy running under FRS and the property business under normal VAT rules.

What are the tax and legal implications of:

1. Changing my current business to a Property Letting business as I understand there are stamp duty charges if I do it the other way and transfer the properties from old to new company?

2. Continuing to transfer reserves between the companies as a loan or transfer?

3. Operating the two companies under separate VAT schemes?

Thanks in advance for your help.

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By alancrm
17th Sep 2012 11:18

I would suggest obtaining some detailed advice on this, but to give you some pointers when speaking to your accountant:

1. it is likely you will have two associated companies for corp tax who will therefore share their small company's rate corp tax band £150k each. This is the case if they are under common control.

2. if you transfer the property out of the current co, you may not attract SDLT (if no proceeds) but would most likely trigger a gain at Open Market Value and pay corp tax on this.

3. If BTL are residential then you cannot register for VAT as the company will be wholly exempt.

4. If the shareholders were to be the same then having the properties in a holding company would be best to avoid problems in transferring money.  You want to avoid funds being lent to property co as being treated as overdrawn director's loans under s 455.  Charging a commercial interest rate may avoid problems, but proper consideration beyond my off the top of my head thoughts would be required.

 

Just my initial thoughts but hopefully it will give you something to work with (plus of course what any other contributors offer)

 

Regards,

Alan

 

 

 

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