Contractor buying a flat

Generali

I am a contractor and my earnings go through a Limited company. I'd like that company to buy a holiday flat some time to let out. I hope that the purchase would be for 'cash' (i.e. no mortgage).

To finance it, I hope to retain some of the profits that the company has made. What happens to the Corporation Tax I have paid on these profits? Can I reclaim it?

Also, would it be possible to borrow a small amount of the value of the flat and then repay the loan when/if the Corporation Tax is repaid to me by HMRC?

WHA

The company is buying an "asset", and there are no capital allowances on that sort of property, so there is no tax relief and no corporation tax repayment. The cost of the property will be carried forward to set against the sales proceeds when it is eventually sold and the company will pay corporation tax on the profits.

Generali

So corporation tax is payable on the money used to buy the asset, on the income that asset generates (rent in this case) and on any profit from the sale of the asset?

WHA

Generali wrote: »

So corporation tax is payable on the money used to buy the asset, on the income that asset generates (rent in this case) and on any profit from the sale of the asset?

Yes, but remember that tax relief is also available on any expenses (although not on improvements or purchase of assets).

Generali

jimmo wrote: »

I know virtually nothing about Corporation Tax but might Generali be better advised to buy the property personally?

He has said that the property is a holiday flat. Profits would obviously be taxable but, provided the holiday lettings rules were complied with losses could be set off against general income.

Also, when the property is sold he would benefit from Business Assett taper on a personal Capital Gain.

I can live on the ~£36k that I can take out of the company without paying the dividend tax on top of the corporation tax. It means that I will have money building up in the company at a rate of £15-25k p.a.. I've got a business plan revolving around holiday lets but if I take the money out of the company to buy them, I would have to pay the dividend tax on the money first.

Is there another way around this? I should understand my tax much better but there's only so much time in the day once Big Bank have taken their pound of flesh.

BTW, I would see the lets as an income stream, not a source of capital gains. I think that's very unlikely in the current environment. If anything I suspect that there would be capital losses for several years, at least in real terms.