Property Investment Company query - is this right?

Property Investment Company query - is this right?

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A property investment company has a directors loan balance of £100,000. During the year the company takes out loans and gives them to the directors to purchase properties in their own names for £290,000. The directors loan account is now overdrawn by £190,000. Client should either repay loan or transfer properties into company to avoid the S455 tax. Of course if properties are transferred this will create personal capital gains and SDLT liabilities? But this will be less than the S455 tax. Does that make sense? Am missing something?

Thank you in advance for any comments or advice.

Replies (5)

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By blok
29th Nov 2011 09:39

.

not really missing anything, but the s455 charge should be seen as temporary whereas cgt and sdlt are dead taxes.

you need to have a think about the long term plans for the properties.

would the CGT really be that much?

why were the properties purchased in this manner? 

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By Settingupalone
29th Nov 2011 09:49

Thank you Blok

I understand the client was able to get a better loan via the company.

Good point about taxes.

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Teignmouth
By Paul Scholes
29th Nov 2011 11:52

Extra bits

Unless the directors pay interest on the 190K, don't forget the beneficial loan interest declarable on the P11Ds along with the NI payable on it.

Also, this may be a silly question, but did the lenders know that the company was going to lend the money on to the directors personally or did they assume the loans would be used in the company for their own portfolio?  If the latter then there are perhaps wider issues than just tax.

All a bit too messy, but then I hanker after the easy life!

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By Marion Hayes
29th Nov 2011 20:38

Interesst concession

What are they doing with the property.

There used to be a concession where there was no benefit if the loan was used for an allowable purpose e.g if the funds been borrowed from the bank and the interest would have qualified for tax relief then no taxable benefit

Is this still the case

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By Settingupalone
29th Nov 2011 21:05

Refurbing properties and then renting them out. I think initally the plan was to sell them.

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