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Overseas property and BIK

Am assessing whether it is worth purchasing an overseas property through a ltd company

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I have a ltd company with shareholder funds of about £250k. I intend to slowly wind down the business and I pay myself an £8k salary + £25k divi each year. I expect to trade for the next 10 years and then wind up the business. I am currently a lower rate taxpayer. There are 2 other employees who are family members.

I have an opportunity to purchase a 'lodge' on a campsite in France. It is not moveable and its purpose would be purely as a benefit to employees. This is a owner-only campsite so there is no commercial holiday letting allowed. It is open 8 months of the year and the use of the lodge will be for all employees of the ltd company. Cost of lodge is circa £100k plus £3k per year ground rent. 

If my ltd company purchases the lodge there would obviously be no capital allowances and no VAT deduction. Given that the contract with the campsite prohibits sub-letting, I assume that the BIK would be based upon the market rate to rent a 2 bed property in the local area eg around £500 per month. 

Am I correct in thinking that..

1) Each employee will pay BIK based on the time spent at the lodge (ESC A91). eg if I spent 4 months out of the possible 8 months it would be 20% of £500 x 4 = £400 per year

2) The ltd company will pay 13.8% NIC of £500 x 8 months = £552 per year

3) The lodge will depreciate (like a caravan) so I am not worried about CGT in the future. It also means I could purchase it back from the company in 10 years' time at an attractive price.

4) I do not intend to sell the business so there are no issues about holding an asset that is a perk for employees.

5) The ground rent and utility costs can be paid for by the ltd company

In my mind this stacks up really well which makes me think that I am missing something fundamental !!

Any advice would be most appreciated.

Thanks

 

Replies (15)

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By Anonymous.
13th Jul 2020 20:18

Think you have covered all the (UK) bases (not sure what overseas issues there may be). Good luck with your venture.

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By Gone Sailing
13th Jul 2020 21:49

Given that the company's money is effectively your money, how does it stack up against taking the money out of the company (extra dividends) and buying it personally, say over a 10 year loan?

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Replying to Gone Sailing:
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By almostretired
14th Jul 2020 07:07

Had not thought of that, thank you.

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By Gone Sailing
14th Jul 2020 09:58

I remember, a long time ago, something about the company owning boats.
That the BIK period was not the personal usage period, but the whole period less the time taken by by others, so the BIK includes the 'vacant' period.
I might be mis-remembering.
But re a property, I suspect you are not the only one doing the sums.

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Caroline
By accountantccole
14th Jul 2020 11:04

"Available for use" certainly used to be an issue, so even if the director only used for a week a year, they could potentially be taxed on the whole year.
Fairly certain the rules were tweaked to stop this being an issue for overseas properties owned by Ltds but couldn't point to the legislation!

That said - has the OP taken advice in France? If there is any remote working (4 months/year may make his likely) then you would find it very hard to argue that the UK company doesn't have a permanent establishment in France. Then you would have all the fun of French taxes and social charges to deal with.
Checked with colleagues here (I am in France) and we can't think of many examples where French property is owned through a UK limited so it feels like there will be a better solution.

Not sure if the business purpose could really be justified for running the expenses through the co?

Can you close the co and use entrepreneurs relief to keep the tax bill down and buy personally?

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Replying to accountantccole:
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By almostretired
14th Jul 2020 12:23

Thanks for the comments.

I could live with a larger BIK charge but did not consider triggering PE issues in France. That would indeed be a nightmare I could do without.

I found a recent article by Simmons & Simmons on this issue, discussing employees working from home in France for a UK company because of the pandemic and the risks this can create. Not sure it gives me any comfort at all: https://www.simmons-simmons.com/en/publications/ck8ubkhy20tol0a18b9yscyv...

Entrepreneur's relief at 10% is more tax than I will pay as a lower rate taxpayer extracting cash that has already been taxed at 19%. My effective tax rate is around 4.5% I think. However it will take at least 6 years to take the money out this way so that does not help with the initial purchase. So I see your point about winding up.

I knew it looked too good to be true !

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By Justin Bryant
14th Jul 2020 13:03

What if you have a girlfriend say and she borrows the money from the company and buys the property?

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Replying to Justin Bryant:
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By almostretired
14th Jul 2020 13:29

Hi Justin - I think that lending to a 3rd party requires the company to obtain a consumer credit licence. The exception is if you charge no interest and only lend for 12 months.

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Replying to almostretired:
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By Justin Bryant
14th Jul 2020 14:15

But if that were a problem in practice HMRC would not need L2P legislation re reciprocal loans or loans to p-ships etc. would they?

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Replying to Justin Bryant:
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By almostretired
14th Jul 2020 14:55

Have to plead ignorance on loans I'm afraid. So you don't see any issues with lending the cash to a 3rd party to purchase ? That would be a simple solution.

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By Justin Bryant
14th Jul 2020 15:11

I cannot see an obvious problem with it, so go & find yourself a nice girlfriend (or boyfriend or just a friend) if you haven't one already (P7A ITEPA 2003 has something re employee asset benefits from 3Ps, but last time I looked there was planning to get round that re property related benefits if it would otherwise apply)!

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By Tax Dragon
14th Jul 2020 15:22

For £100k , I'd think about being your friend.

But I've realised you want me to invest it in a lodge in France that I won't visit (I'm not that sort of friend) and that will depreciate. So I'll lose money but still owe your company £100k.

I can see why you would like that arrangement. I can't see why I would.

So, sorry Louis, but I think this is not the beginning of a beautiful friendship.

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By Montrose
14th Jul 2020 19:13

Two further angles to consider.
1]You and the company are connected, so the company would not have an allowable chargeable loss when you buy at a reduced price from the company some years down the road.
2]Have a look at https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21650 to see if there would be a taxable benefit on the proposed sale- I fear there could be.

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Replying to Montrose:
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By almostretired
14th Jul 2020 19:23

Thank you Montrose - I will work through that link tonight.

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By Paul Crowley
14th Jul 2020 20:08

That always is the problem with tax.
Any good idea has already been considered and disabled

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