I recently purchased a flat in a building under leasehold that consists of only 3 apartments in total. The seller is willing to sell the freehold of the entire building under the structure of Resident Property Management limited company (by shares). I agree to the sale and become the sole director of the limited company which has the overall freehold of the property.
I am allowed to collect £200 ground rent from each leaseholder and I also intend to share the service charge (building insurance) among us three. I will not make any profit of the service charge and thus the ground rent will be my only income. My question is do I need to file any tax return on behalf of the company/for myself for the ground rent that I gain in this case?
Please kindly suggest if there is a simpler way to deal with this situation as it is quite pointless to hire an accountant to do the paperwork just for that little ground rent income. Alternatively, can the tax returned be filed by myself without hiring an external accountant?
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I'm sure it's pointless hiring an accountant for that little income.
I mean, it's not like your confused over whether the income is your personally or the Ltd companies.
Its not like its hard to file ixrbl compliant company accounts to hmrc and accounts to companies House.
And I guess you understand the differences between corporation tax on profits no matter how small, as well as potentional income tax issues depending on how you draw the profits for yourself, as well as declaring those drawings to hmrc.
You probably don't need an accountant to advise you of the best method of extraction either.
Those are all sarcastic comments BTW, just to prove a point, that an accountant doesnt just "file a tax return for such little income"
What was happening prior to your purchase? You presumably have seen teh accounts for prior years.
Yes, you can certainly do any tax return yourself, by the way.
Your mistake was not speaking to an accountant before you purchased the freehold. Yes you can file your own abbreviated accounts at Companies House, Corporation Tax return and accounts with HMRC. You might need to file a personal tax return as well depending on your circumstances and how you extract any profits that might be left in the company. Don't forget to file the confirmation statement as well.
Forgive me if I've misunderstood but I infer that you will buy nothing.
A property management company will buy it.
You say you will be sole director - who will be the shareholders ? The shareholders own the company, not the director.
The tenants will have rights under the Landlord and Tenant Act as well as the company's obligations under the Companies Acts.
Take proper advice urgently.
Forgive me if I've misunderstood but I infer that you will buy nothing.
A property management company will buy it.
You say you will be sole director - who will be the shareholders ? The shareholders own the company, not the director.
The tenants will have rights under the Landlord and Tenant Act as well as the company's obligations under the Companies Acts.
Take proper advice urgently.
I've possibly misunderstood. I was thinking that the company already held the freehold (as, I believe, is the usual case in leasehold residential arrangements).
Having re-read the question, not sure that would make sense!
I've possibly misunderstood.
Given the garbled nature of the OP, perfectly understandable.
It could be me who has it wrong. Who knows ?
Ikakachun, you have no idea what you are talking about, and therefore the answer to your last question is NO!! Get an accountant.
If you know all the company house rules and Corp Tax rules then go ahead.
Not difficult to find out provided that you check your sources.
But blame yourself if you misunderstand the rules. And definitely do not try to claim that it is a dormant company.
Make sure you know how to deal with requests to extend leases.That is the one that is critical
How do you intend to deal with solicitors enquiries when someone wants to sell his flat?
There is a reason for the past dormant accounts. And probably a reason for changing to micro entity accounts now.
That's a big hint for you to research why this is the case.
The usual arrangement in RP companies is for each leaseholder to own one share.
It's not mandatory but take advice.
I reckon the other two flat leaseholders are not interested in the freehold purchases, that s why remaining leaseholder (the current seller) gets them all (all shares)
So you don't live there. You're just buying this as an investment.
I still think you should take advice. Especially about the company's Landlord and Tenant Act obligations. Up to you, obviously.
The seller will sell the freehold of the entire property as a Resident Property Management limited company at the price of £20,000.
As the freeholder, I do not intend to make any profit just manage the property as one of the 3 flats is the one I will be living in. I am planning to keep the profits made on grount rent income.
So you are buying a company which owns the freehold for £20,000. The company (not you) has the right to £200 (pa?) ground rent per flat - so £400 or £600 if you also have to pay. Is there any escalation of ground rents included in the lease? eg RPI indexation? £600 less corporation tax would leave the company with £486 which (assuming it is permitted) could be paid to you as a dividend giving you a return of 2.4% pa.
I can't reconcile the statements "I do not intend to make any profit " and "I am planning to keep the profits made on grount rent income".
What is your motivation to do this? Did you initiate or was it offered to you?
>The seller just says the limited company owns the freehold and I can charge other two leaseholder ground rent and service charge. Sadly there is not much more information I can obtain.
Personally, I wouldn't spend £20,000 unless I had much more detailed information.
The whole reason for me to purchase the freehold is to have more control on the flat (better flexibility when I do potential loft conversion and also no ridiculous services charge). The ground rent part just comes as a bonus.
The seller just says the limited company owns the freehold and I can charge other two leaseholder ground rent and service charge. Sadly there is not much more information I can obtain. The seller sells the flat under leasehold originally, but with a note saying it is possible to purchase the freehold as well. That is why I am here to gather ideas to see if there is a pitfall or potential responsiblity when I get this freehold company.
So we're dragging it out of you bit by bit.
You now seem to be buying a lease hold flat off the current owner and he's offering you the freehold as well. You seem to imply that you won't have any of these tiresome service costs - maybe because you'll be billing them out to the other tenants ? It's not clear ....
Why don't you just tell us your tale so that we have some proper facts to work on ?
If you aren't completely open, you won't be able to rely on any comments we make.
What do you intend to do on sale? ( When you move out of flat )
What will be the cost of your flat?
How do you intend to sell the shares in the investment company?
Willl you extend your lease for free?
If the other leaseholders buys the share of the company, and we all become share of freehold. Then we can extend anyone’s lease for free. But if I still have the sole ownership of the freehold, then I will charge a reasonable premium on that.
IF the company BENEFICIALLY owns the freehold then asset stripping the company in the way you think gives both it and you tax issues. But before you get to the tax, you have to deal with the legals. So I agree Lesley's comment below. Get your solicitor involved before you end up £20k or more out of pocket for no reason. (Hence also my previous comment and Tim's "offer £10k" advice.)
Once the legals are sorted, you can think about the tax. In that regard too, I would recommend taking advice. This really isn't about preparing accounts for £600 of income.
Should you not be speaking to your solicitor who is dealing with the purchase of the flat about the implications of the freehold, if the estate agent is being vague. They will be able to request all the documentation from the sellers solicitors and explain any pitfalls of this purchase to you. They will also be able to advise whether there is anything preventing you from doing a loft convertion which seems to be the reason for you purchasing the freehold because you then want to try to sell the freehold to the other flat owners if possible. The freehold belongs to a company not you personally, you also say that the company has to cover the insurance which you are hoping to claim from the three flats. What happens if the other flat holders don't want to pay the insurance or for repairs? I think you issues at the moment are legal than accounting.