Limited Company Buying residential property

Owners are selling off a property that they rent out as they need cash out, can they sell to own LTD

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I have a client who needs to personally raise some cash.  They have a rented property with no mortgage that they are thinking of selling.  They have a LTD company with more than enough in retained earnings to purchase the property and for it to be kept in the business as an investment and gain the rental income.  I know that the business would have to pay higher rate stamp duty and the usual taxes of any income going into a LTD company.  Then they would personally receive the money and pay any capital gains (same as selling externally).  But my client has been told by thier previous accountant that thier LTD company can't buy residential?  Are there any restrictions? not sure why they have been told this?

Thanks in advance

Replies (10)

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By johngroganjga
22nd Nov 2018 13:39

Presumably the company has cash. They can’t buy the property with retained profits.

Yes of course the company can make the purchase.

But have you compared the tax cost of getting the cash out of the company as dividends with the CGT payable on the proceeds of selling the property?

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Replying to johngroganjga:
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By SUZANNE2406
22nd Nov 2018 14:08

Yes they do have cash in the business.

I need to work out the numbers but wanted to ensure I wasn't missing something!

They are already in higher band tax for dividends

CGT for when they sell to LTD co or external I believe will be the same

Do you mean the Capital Gain when the LTD company eventually sells? would this just be subject to Corp Tax and dividend when take out?

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Replying to SUZANNE2406:
By johngroganjga
22nd Nov 2018 14:58

No I mean compare the tax they pay on extracting the cash as dividends with the tax they pay on extracting the same cash as sale proceeds of the property.

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By Tax Dragon
22nd Nov 2018 14:22

What your clients' previous accountant actually told them has, I suspect, been lost in translation.

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By Watson Associates
22nd Nov 2018 15:33

I would have thought mortgaging the property might be the answer.

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By ireallyshouldknowthisbut
22nd Nov 2018 16:07

One assume the main point being made is that it will kill off ER for the company.
There is a lot of tax & costs to move it, CGT + SDLT + legals
Any future capital gains are "taxed twice", ie CT and the tax cost of getting it out
The underlying tax on the rents will be higher as a dividend vs Sch A

In short its the tax equivalent of shooting yourself in the both feet, and one in the knee cap for fun.

Can the co not simply lend the spare cash it is holding to the individual? Yes you might get a loan charge, but it is refundable unlike SDLT.

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Replying to ireallyshouldknowthisbut:
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By Tax Dragon
22nd Nov 2018 16:35

That's along the lines of what I suspect was lost in translation, though if the former accountant put it the same way to the punter as you put it here, the loss is perhaps understandable.

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By frankfx
22nd Nov 2018 21:38

''can't''

May have been lost in translation

Probably / could have meant , if ltd buys the property the taxes and costs at acquisition and (double )tax on sale or exit...….

Would have outweighed advantages.

This left tax- payer thinking ''can not'' do.

Was the earlier advice in writing …. as your current advice / guidance s likely to be.

Is it possible that there is something other acco8natn had thought of , that really did mean ''can not''.... in taxpayer particular circumstances .

I am invariably curious when one accountant says ''no can do''...…… and I can not see the blockage .

Mortgage finance gets my vote. At least to explore

Or even a director / participator loan .

The s455. tax ----' loan' to HMRC may be a cheap deal all things considered .

But these are all part of the range of options one needs to consider.

Also shows to your client that you are studying their problem from many angles.

Hopefilly a big £ fee follows when they express gratitude for your efforts and an effective solution , that works now and for the foreseeable pre- brexit tax future !

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By chicken farmer
23rd Nov 2018 00:04

If selling to a company he controls think about transactions in securities-IRC v Cleary

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By Montrose
23rd Nov 2018 17:02

One extra point. If the company is a trading company, such a purchase may prejudice BPR in respect of the shares, although technically surplus cash could give rise to the same issue. Using the cash to buy investment property rather gives the game away.

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