Contractor company & a buy-to-let property

Contractor company & a buy-to-let property

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I have a limited company contractor client hell-bent on finding ways to use the reserves in their business without taking dividends. They now want to buy  a buy-to-let property in the company name, potentially outside the UK. My instinct tells me this is a bad idea. I'm sure they're planning to stay in it at least some of the time which would obviously be a taxable benefit in kind, but even if they didn't I can't help thinking this isn't worth it. I know there are some advantages (avoiding additional property SDLT, mortgage interest tax relief) but ultimately they'll still have to pay income tax on dividends on their original reserves, plus any gains, plus corporation tax on the gains, plus they might scupper their chances of claiming entrepreneurs relief when they close the company. Any thoughts?

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paddle steamer
By DJKL
25th May 2017 11:52

Also think it is not the world's best idea, however if hellbent one thought might be, is there an advantage later (maybe) if another company is formed to buy and a loan from existing company is made to new company?

Re ER in future, once the property is in existing company only real chance of qualifying later, 10-15-20 years from now, is if it is sold, at least with distinct company and loan between them maybe scope to recover all of loan prior to wind up of existing company and still get ER (maybe)

My main concern though would be how this company will need to report in the country the property is located, this adds a whole raft of complexity and cost, is it really justified?

I own a property abroad in Sweden, see my picture, I muddle by re my return there and at least they print some of the guidance in English, I do not rent it to others purely because I do not want the hassle of reporting so really just need to report valuation for property tax and any significant enhancements (which I get to eventually offset against their equivalent of CGT as and when we sell).

Frankly that is enough complexity for me, either your clients are happy with the foreign regime , its language, tax system or the property proposed is of a scale when paying for professional help year after year is justified.

They ought not to discount language differences, at least my nearly local branch of KPMG (45 minutes) has staff who speak English as do most staff at Skatteverket when you call them, they have been very helpful when I have got stuck.

Do the jurisdictions they are considering have the same ability to speak English/how do they see all this working?

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Replying to DJKL:
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By whatdoyoumeanwashe
25th May 2017 21:01

Thanks DJKL. I think perhaps my client would be happier with an accountant who wants to sail closer to the wind.
Interesting point about the second company, although I wonder if the loan to a property investment company would be considered a managed investment in its own right and still kill the ER opportunity (which will most likely have been abolished before this client decides to reap their rewards).

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Replying to whatdoyoumeanwashe:
paddle steamer
By DJKL
25th May 2017 21:17

I think the loan would but if say renting the property in (2)and Contractor continued trading in (1) scope to pay it back from (2) to (1) over a period then have first company in a tidy shape holding cash for two years pre winding it up.

Chances of ER still being with us in current form in 10-15-20 years pretty slim I grant re past form, but you never know.

It does also ringfence the foreign bit in one company.

Still think it is not a good idea, whilst not totally adverse to property in companies for the right reasons not convinced the foreign element makes it very attractive.

There are I believe some countries where using a company to hold is considered the way to go, but not sure if that would be a UK company or a foreign company.

The last thing I would want is one company having to report in two jurisdictions re different activities hence the idea of a second entity.

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By Ruddles
25th May 2017 21:59

Why do you think putting the property into a company would avoid additional property SDLT (which wouldn't be payable in respect of an overseas property in any case)?

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Replying to Ruddles:
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By whatdoyoumeanwashe
05th Jun 2017 09:57

It wouldn't avoid SDLT, you're right. Property companies is not something I've dealt with, nor do I want to. Location of the property could be UK, client has not decided.

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