Using company cash to fund house purchase?

markwm

I have a rather unique situation(I would assume).

I run my own LTD company, which I own 100% shares. I have rather a lot of cash in the company account(£400k+). I myself have circa £50-60k in personal savings.

I don't currently own any property but would like to buy a house. Looking through various mortage sites I'm literally baffled with jargon but that aside some of these mortgage calcs do throw up some hair raising results.

The problem I have is that all my company cash would be subject to 32.5% income tax if I were to use it to buy myself a house(ie, withdraw a LARGE dividend). Therefore, I'm looking at getting mortgage, but at the same time I'm thinking my own company has the cash I need so why am I going to *another* company to borrow the money!!

Is there any way at all I can use my company's money to somehow better aid a personal property purchase? other than withdrawing a large lump sum and suffering mass income tax?

I've been looking at houses in the region of £300-£325k.

regards

Andy_L

Could the company buy the house & then rent it to you or loan you the money?

If the rent/loan was below market rate you would be taxed on the discount as a benefit in kind.

WHA

The higher rate tax on your money if you took a dividend is 25% of the dividend - you are getting confused with the 32.5% as that includes the notional tax credit (pretend tax that never gets paid nor can be reclaimed - thanks Gordon!!). It's still painful, but tax would be say £50,000 on taking out £200,000!

Other options - do you still use/need the company? Could you close down the company and trade as a sole trader instead? The point being that closing down your company, you may get ESC C16 treatment if you apply for it from HMRC which means the huge lump of cash you draw will be taxed as a capital gain, and you may get business asset taper relief and your annual exemption, potentially limiting the tax to just 10% - a whole lot better than 25% as a dividend. Obviously, you really do have to close down the company and as the treatment is concessionary, HMRC could take it away if you started up a new company too quickly afterwards - hence why I suggested sole trader.

The company buying a house as suggested is a possibility, and yes there may be benefit in kind implications, but worse still is that as the company owns it, there would be corporation tax on any gain when you eventually sell - you wouldn't be eligible for principal private residence relief or annual CGT exemption that you would get if you personally owned and lived in your own home, so that means lower tax in the short term, but higher tax later on when you come to move, so overall, not necessarily a bright idea.

markwm

WHA wrote:

The higher rate tax on your money if you took a dividend is 25% of the dividend - you are getting confused with the 32.5% as that includes the notional tax credit (pretend tax that never gets paid nor can be reclaimed - thanks Gordon!!). It's still painful, but tax would be say £50,000 on taking out £200,000!

You'e correct in that this is one area I have always been confused over. My accountant assures me it's 32.5%, and that the credit has already been used up.

Reading on the net resources say the 10% credit takes it down to 22.5%, not 25%. So I'm still a little confused here.

Other options - do you still use/need the company? Could you close down the company and trade as a sole trader instead? The point being that closing down your company, you may get ESC C16 treatment if you apply for it from HMRC which means the huge lump of cash you draw will be taxed as a capital gain, and you may get business asset taper relief and your annual exemption, potentially limiting the tax to just 10% - a whole lot better than 25% as a dividend. Obviously, you really do have to close down the company and as the treatment is concessionary, HMRC could take it away if you started up a new company too quickly afterwards - hence why I suggested sole trader.

I could do that without much trouble(ie, go sole trader, I used to be one before going LTD). But if my earning remain as there are then I'd have some hefty 40% tax bills in the future

The company buying a house as suggested is a possibility, and yes there may be benefit in kind implications, but worse still is that as the company owns it, there would be corporation tax on any gain when you eventually sell - you wouldn't be eligible for principal private residence relief or annual CGT exemption that you would get if you personally owned and lived in your own home, so that means lower tax in the short term, but higher tax later on when you come to move, so overall, not necessarily a bright idea.

Thanks for the advice guys!

WHA

markwm wrote:

Reading on the net resources say the 10% credit takes it down to 22.5%, not 25%. So I'm still a little confused here.

22.5% of the gross is the same as 25% of the net

markwm

WHA wrote:

22.5% of the gross is the same as 25% of the net

...it's my accountant that's confused me to be honest. Always teling me that my dividends will be taxed at 32.5%. When in real terms there's a 10% tax credit I don't even need to know about.

All I need to know is that my £100k net dividend withdrawal will require me to pay £25k income tax(assuming I'm well into the high tax bracket already). Correct?

WHA

markwm wrote:

...it's my accountant that's confused me to be honest. Always teling me that my dividends will be taxed at 32.5%. When in real terms there's a 10% tax credit I don't even need to know about.

All I need to know is that my £100k net dividend withdrawal will require me to pay £25k income tax(assuming I'm well into the high tax bracket already). Correct?

Yes, correct.