Householders Clubbing together to buy land?

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I've never come across this one before, so am hoping you wise lot can help! In all my accountancy years with clients I have just dealt with the usual 'bog-standard' Ltd company with services/goods etc etc. Nothing too far out of the norm.

This one is more for me, and not actually a client, but I've been enlisted to deal with the accounting side of things. General crux:

Householders (including me) along 4 roads all pitching together to purchase the alleyways all around us that have come up for sale (has been owned by a wealthy trust somewhere in Scotland since the houses were built many years ago). A company limited by guarantee was set up initially (not by me) and the payments were made by all the householders by way of a 'membership fee' invoice, mainly as everyone wanted something formal with bank details on to pay. 

The land sale went a bit wrong as the owner passed away and it's all in probate, likely go through in the next few months. Aside from that it's just cash in the account and a few expenses (company set up fees, address, software to run). 

How would you all deal with this in terms of bookkeeping and annual returns? Any wisdom pass on would be hugely appreciated.

Thank you!

Replies (23)

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By Bobbo
19th Jun 2024 12:20

I think the key thing to clarify is whether the company is buying the land beneficially or whether it is buying it as a nominee for the "householders".

What will land be used for?
What rights will Householders have over land? (or what rights do they already have?)
How will any required maintenance of land be arranged and funded?

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Replying to Bobbo:
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By Feefee147
19th Jun 2024 12:27

Hey Bobba,

Thank you for your speedy reply.

The land serves absolutely no purpose other than to provide access to the householders (alleyways alongside and behind the houses). This will remain the same, there's no profit or value in it.

Maintenance/insurance and any other associated costs will be split between the householders who will pay into the company account, and expenses paid out from there.

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Replying to Feefee147:
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By Feefee147
19th Jun 2024 12:28

"Bobbo" - pesky autocorrect!

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Replying to Feefee147:
paddle steamer
By DJKL
19th Jun 2024 12:47

You say this is in Scotland. Do the householders currently have any rights re these lanes etc, servitude rights /burdens re use/access etc. If they do already there actually may be little purpose in buying the land. Solicitor needs to look at the various titles.

You also can have in Scotland lots of distinct owners of one piece of land (pro indiviso ownership) without needing a distinct beastie to hold the title and you often have say a Deed of Condition agreed re such common areas (if need be presented/ratified via Lands Tribunal), how managed, costs, rights to appoint managing agents etc. Also remember liability insurance, someone trips and sues.

I would go to a reputable Scottish law firm with a decent conveyancing team

Edit- land in Scotland or just Trust in Scotland?

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Replying to DJKL:
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By Feefee147
19th Jun 2024 13:04

Hey DJKL,

The land is currently owned by a Scottish trust, but is actually in North London. So not necessarily relevant (I just added for background info).

Householders have right of use/access already. So no, not really any benefit in buying as nothing will change (except the burden of insurance etc) but everyone got together and decided, as the cost is fairly small when split between them all, it was worth purchasing just to keep it in-house.

In terms of paperwork etc it was deemed easier at the start to set up a Ltd company (guarantee) and operate out of one bank account, and have the householders as members.

It would be best to keep as is, just because that's how it was all agreed initially and I think it would confuse people to change it all about.

The insurance is minimal when split between all the houses so aside from a few hundred quid initially it's really not a huge drain on everyone and some of the more panicky householders were concerned about someone external buying it and levying hefty management fees.

As it stands there is no profit to be made and not really any change to usage.

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Replying to Feefee147:
paddle steamer
By DJKL
19th Jun 2024 13:28

Well, in that case the main issue is maybe ensuring the shareholding always transfers with change of ownership of individual properties, presume something needs flagged in both company articles and in property titles to ensure this happens. (if not executry sales, where family not aware of arrangements, may over time make matters very messy.)

Again decent solicitors needed but now re both conveyancing and corporate.

Edit-all sounds like mutual trading re tax etc

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Replying to Bobbo:
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By Feefee147
19th Jun 2024 12:27

Hey Bobby,

Thank you for your speedy reply.

The land serves absolutely no purpose other than to provide access to the householders (alleyways alongside and behind the houses). This will remain the same, there's no profit or value in it.

Maintenance/insurance and any other associated costs will be split between the householders who will pay into the company account, and expenses paid out from there.

Thanks (0)
Caroline
By accountantccole
19th Jun 2024 12:37

I have seen this set up as a limited co, much in the same way a flat management company operates where freehold was owned by all flat owners.

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Replying to accountantccole:
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By Feefee147
19th Jun 2024 13:06

accountantccole wrote:

I have seen this set up as a limited co, much in the same way a flat management company operates where freehold was owned by all flat owners.

It's certainly easier that way in terms of admin.

But when it comes to accounts and filing I'm unsure of the actually bookkeeping for the transactions, and for HMRC purposes do the payments qualify for corporation tax? I'm assuming not (HMRC guidance seems to imply not) but as it's not something I've not encountered before I'm scratching my head a little with it all!

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By ireallyshouldknowthisbut
19th Jun 2024 14:34

hint- get the land owned by the company,and do nothing with it. it just holds the land. Make sure its done 100% by the book so its (probably) with shares auto passed onto the new owners of the properties as they move on and doesnt mess up everyones conveyancing when moving house. Spend time and money on this aspect.

Keep the management side in a tin with a bulldog clip of receipts and have a street party / BBQ etc once a year to sign off the "accounts" drawn up by somone on a sheet of A4. Dont mix that with the land co.

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Replying to ireallyshouldknowthisbut:
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By Feefee147
19th Jun 2024 14:52

ireallyshouldknowthisbut wrote:

hint- get the land owned by the company,and do nothing with it. it just holds the land. Make sure its done 100% by the book so its (probably) with shares auto passed onto the new owners of the properties as they move on and doesnt mess up everyones conveyancing when moving house. Spend time and money on this aspect.

Keep the management side in a tin with a bulldog clip of receipts and have a street party / BBQ etc once a year to sign off the "accounts" drawn up by somone on a sheet of A4. Dont mix that with the land co.

Hi :)

It's the accounts bit I'm struggling with - double entry, where to code the member payments ('membership fees' - is this still classed as revenue?) and how to treat this all when submitting accounts/for tax purposes etc.

Seems pretty simple based on comments but not something I have ever encountered before!

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Replying to Feefee147:
paddle steamer
By DJKL
19th Jun 2024 15:31

Maybe all goes to debtors, creditors and bank.

Certainly the initial money is surely not income.

Services paid for later may therefore initially show a surplus but will likely mainly be matched with costs eventually, even if later. Even if surplus suspect mutual trading.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim24000

Surely there was some legal agreement as to what the money was before it was paid and surely Articles describe how matters are to operate etc (and what happens if someone does not pay etc, sinking funds etc)

Or have you all rushed in blind?

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Replying to DJKL:
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By Feefee147
19th Jun 2024 17:56

DJKL wrote:

Maybe all goes to debtors, creditors and bank.

Certainly the initial money is surely not income.

Services paid for later may therefore initially show a surplus but will likely mainly be matched with costs eventually, even if later. Even if surplus suspect mutual trading.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim24000

Surely there was some legal agreement as to what the money was before it was paid and surely Articles describe how matters are to operate etc (and what happens if someone does not pay etc, sinking funds etc)

Or have you all rushed in blind?

Articles, contracts etc etc have all been drawn up and it all looks very sensible. I’m not a lawyer but we have those amongst the members. In terms of the company it is very clear regarding the nature of it, ownership etc etc.

The householders, of course, did not do all this themselves. I think that would have absolutely been messy!

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Replying to Feefee147:
By ireallyshouldknowthisbut
19th Jun 2024 15:38

Feefee147 wrote:

ireallyshouldknowthisbut wrote:

hint- get the land owned by the company,and do nothing with it. it just holds the land. Make sure its done 100% by the book so its (probably) with shares auto passed onto the new owners of the properties as they move on and doesnt mess up everyones conveyancing when moving house. Spend time and money on this aspect.

Keep the management side in a tin with a bulldog clip of receipts and have a street party / BBQ etc once a year to sign off the "accounts" drawn up by somone on a sheet of A4. Dont mix that with the land co.

Hi :)

It's the accounts bit I'm struggling with - double entry, where to code the member payments ('membership fees' - is this still classed as revenue?) and how to treat this all when submitting accounts/for tax purposes etc.

Seems pretty simple based on comments but not something I have ever encountered before!

If you have never encounted it before, should you be doing it?
You would need to look in detail at the set up as how its been done to work out the puzzle. You may be too far down the line to set it up well. I dont know.
Most of these are badly set up, and then a huge pain to run as its all done on the cheap by people who dont know what they are doing as they are doing it to help out as part of the community. Please dont be one of those very well meaning, but utlimately unhelpful in the long run people. I have seen it so many time, and so many hours is poured into these thing which simply did not need to happen had it been done simply in the first place.

Thanks (1)
Replying to ireallyshouldknowthisbut:
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By FactChecker
19th Jun 2024 17:01

I was wondering what OP's LoE covers?

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Replying to ireallyshouldknowthisbut:
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By Feefee147
19th Jun 2024 18:01

ireallyshouldknowthisbut wrote:

Feefee147 wrote:

ireallyshouldknowthisbut wrote:

hint- get the land owned by the company,and do nothing with it. it just holds the land. Make sure its done 100% by the book so its (probably) with shares auto passed onto the new owners of the properties as they move on and doesnt mess up everyones conveyancing when moving house. Spend time and money on this aspect.

Keep the management side in a tin with a bulldog clip of receipts and have a street party / BBQ etc once a year to sign off the "accounts" drawn up by somone on a sheet of A4. Dont mix that with the land co.

Hi :)

It's the accounts bit I'm struggling with - double entry, where to code the member payments ('membership fees' - is this still classed as revenue?) and how to treat this all when submitting accounts/for tax purposes etc.

Seems pretty simple based on comments but not something I have ever encountered before!

If you have never encounted it before, should you be doing it?
You would need to look in detail at the set up as how its been done to work out the puzzle. You may be too far down the line to set it up well. I dont know.
Most of these are badly set up, and then a huge pain to run as its all done on the cheap by people who dont know what they are doing as they are doing it to help out as part of the community. Please dont be one of those very well meaning, but utlimately unhelpful in the long run people. I have seen it so many time, and so many hours is poured into these thing which simply did not need to happen had it been done simply in the first place.

I have never in my 30something or other (mumbles) years in accountancy/finance roles encountered a group of people buying the alleyways around they houses collectively.

Neither my initial training, CPD or working experience ever covered this specific situation… hence why I’m asking knowledgeable bods for their wisdom and advice.

Could we find a land/mutual trading savvy accountant - perhaps. It just seemed overkill considering the simplicity of the transactions.

Nonetheless, I thank you greatly for your advice and will see if a ‘niche’ accountant can help

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By Paul Crowley
19th Jun 2024 18:23

Treat is just the same as any other service charge company with a freehold, is what I would say if it were in England.
Scots rules? No idea mate.

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Replying to Paul Crowley:
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By FactChecker
19th Jun 2024 18:57

OMG have the Scots invaded London?

OP: "land is currently owned by a Scottish trust, but is actually in North London."

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Replying to FactChecker:
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By Feefee147
19th Jun 2024 19:28

FactChecker wrote:

OMG have the Scots invaded London?

OP: "land is currently owned by a Scottish trust, but is actually in North London."

:)

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Replying to FactChecker:
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By Paul Crowley
19th Jun 2024 19:35

Not in the OP, but by the OP.

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By DJKL
21st Jun 2024 18:45

We only got to Derby last time.

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By Jo Nokes
21st Jun 2024 16:41

Ireallyshouldknow pointed you in the right direction. Leave the company with the cost of the land balanced by the initial loans, and it’s then effectively dormant. No ct600 needed. No big accountancy problems, a simple list of expenses annually and request a contribution from each owner, in a separate bank account

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By Jack the Lad
21st Jun 2024 17:14

I am not sure it really is as simple as stated by many above!

The company is clearly a not-for-profit company, so the only corporation tax to pay would be on interest received.
However, as indicated by DJKL at 14.38 on 19th, you must ensure that statutory records are kept up to date, so each of the property owners will be shareholders, and upon any change of ownership, the share would be transferred from vendor to purchaser for nominal value only, and duly recorded in the Register of Members.
In addition, there should be a Service Agreement entered into and signed by all owners stating the rights and obligations of both the company and the owners/shareholders in their capacity as owners, preferably drawn up by a suitably experience and qualified solicitor.

However, that is the main reason why it is not so straightforward: whilst the current owners might be happy for casual accounting, new owners may, indeed should, require proper accounts, which incidentally still have to be filed at Companies House.
For this reason, I believe that you should have:
1. proper accounting records;
2. make due provision for contingent liabilities such as communal repairs, repaving, etc;
3. ensure that the management charge to owners is sufficient to cover the resulting costs;
4. make sure that everyone is aware of their responsibilities and liabilities and pays accordingly per the Service Agreement.

As such, this will be not much different from the "normal" residents' management company which manages a block of flats.

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