I have a client who has been with me for many years, he has decided to buy a flat to rent out as an investment. He wants to do this through a Ltd Company structure in which he will own 100% of the shares.
The flat will cost £700,000 (London prices - crazy I know) which he will be paying for in cash that he has saved over the last ten years.
My question is:
- What is the best way for the client to put the money into the new company?
- as equity meaning the company is worth £700k and he is the only shareholder OR
- as a £700k director's loan, meaning the company is worth £0.00 but he can easily withdraw his loan over time incurring no tax charges (he would not want the company to pay him interest as he is a 50% tax payer so not a great deal of point).
I get the idea that he will be looking for a mortgage in the next few years to increase his property portfolio in the company - does this have a bearing on the above?
The main strategy is to hold the properties for a long period of time using the rental income as retirement income in 20 years time and probably leaving them to his children when he dies.
What is bugging me is if I'm missing something - niggling feeling that I am.
Any help would be much appreciated.