Property & Investment Company

Livethedream_2

First post in a while !!

I have just set up a company with the intention of using it for three different purposes but all with the same theme.

1. To hold investment property

I currently own 5 buy to let properties, all but 2 are mortgage free. I intend to transfer these into the limited company at tax efficient times. i.e so I utilise my CGT allowance effectively.

I'm happy with how this will work and intend to hold them in the company for the long term.

2. To hold equity shares in small Ltd companies

I own small equity shares in 4 companies, each around 10% and intend to transfer this investment into the company. I would expect to receive dividends.

I think Im happy I would record any income from these as normal and be taxed accordingly

3. To hold equity shares in listed companies.

I do a fair bit of trading all be it on a small scale and hold £15k of shares. id like to get these into the limited company and and build on this.

How would I best account for these? Would they be held as shares for trading and any revaluation at accounts date be taken as income?

Im basically trying to tax plan for the future whilst at the same time have all of mine investements and shares in one place.

Also is there a company that I can have a share trading account in a limited company name?

Any thoughts / help would be appreciated. I am an accountant myself but have no experience of the equity shares bit so looking for advice and to confirm my thoughts / knowledge in each area

Thanks

thenudeone

I am sure you can find a broker who will trade / hold shares for a company but it will be more expensive than for a person.
There is a large and very competitive market in stockbroking for individuals, but a very much smaller market for companies, who are also less price-sensitive.

I had to look hard and ask a lot of questions before finding a stockbroker who would open an account for my SIPP trustees, (TD Waterhouse) and even then I keep having problems because they keep rejecting funds sent by the trustees because the funds don't come from a bank account in my the correct name.

I can't help with the other questions.

Livethedream_2

It's a start so Thank You

Pennywise

Make sure you are aware of the double tax charge when you sell the assets and want to remove the money from the company.

Stage 1 - The company sells a property, shares or whatever and is liable to corporation tax on the profit it makes - there are NO capital gains tax exemptions or tax free annual allowances for limited companies.

Stage 2 - If you want to draw the profit (less corporation tax) out of the company, it will have to be payroll (income tax and NIC), or dividends (personal higher rate income tax) or a capital distribution if you're closing down the company (capital gains tax at up to 28% less only your personal annual CGT exemption).

If you had kept the property/assets in your personal ownership, you'd have only had the capital gains tax on the profit less your annual CGT exemption - i.e. taxed only once, not twice.

Whilst assets in a limited company are likely to mean less tax on income over the years, it's almost certainly going to mean more tax in the end game when you come to sell the assets and you want to draw the money. You'd need very careful timing to spread the asset sales and draw out the profits over several years to minimise your personal tax on drawings.

nomunnofun

Excellent post from Pennywise. I wish I could put a number on the number of occasions where I have come across the scenario where a client (usually before consultation, of course) has put their business or property into a limited company vehicle to, quite legitimately, save tax. When it comes to the end game, the client wants to access their investments in exactly the same manner as they could pre-incorporation only to find that it is much more expensive to put assets into a company than it is to take them out.

martinsurrey

Pennywise wrote: »

Make sure you are aware of the double tax charge when you sell the assets and want to remove the money from the company.

Stage 1 - The company sells a property, shares or whatever and is liable to corporation tax on the profit it makes - there are NO capital gains tax exemptions or tax free annual allowances for limited companies.

Stage 2 - If you want to draw the profit (less corporation tax) out of the company, it will have to be payroll (income tax and NIC), or dividends (personal higher rate income tax) or a capital distribution if you're closing down the company (capital gains tax at up to 28% less only your personal annual CGT exemption).

If you had kept the property/assets in your personal ownership, you'd have only had the capital gains tax on the profit less your annual CGT exemption - i.e. taxed only once, not twice.

Whilst assets in a limited company are likely to mean less tax on income over the years, it's almost certainly going to mean more tax in the end game when you come to sell the assets and you want to draw the money. You'd need very careful timing to spread the asset sales and draw out the profits over several years to minimise your personal tax on drawings.

If he intends to hold the assets (properties) for a long time, don’t forget about indexation allowance in the LTD company.

Over the long term this is worth MUCH more than the loss of CGT personal allowance.

also double tax isn’t too much of a big deal, 21% corporation tax compounded with 25% margin higher rate divi tax is only 40.75% so comparable to higher rate income tax.

And in the short to medium term being in a company is much much better in terms of cash.

Eg you sell a property to your company for £2m the property is owned by you (no mortage), the company financed the purchase through an interest free loan from you, so no cash changed hands.

The property makes £200k a year profit (equal to cashflow). Corporation tax @ 21% = £42k. You take a 6k salary and £35k divi from the company paying zero income tax and then the company pays you £117k of your loan back.

Net effect – you have £158k in your back pocket after tax.

If you had held the property as an individual you would have paid £78,000 income tax, £36K more, I know you are saving up an income tax bill to get the capital value of the property out of the company, but the immediate cash advantage in most cases far outweighs this to most savvy investors, this and indexation allowance make corporate wrappers good for high net worth people.


the exit stratagy does need to be considered, but with a bit of thought and planning can be done tax efficiently.

Livethedream_2

Great stuff again, really appreciated.

I certainly hadnt realised with referecne to the indexation allowance being available to companies.

Any properties that do go in the company will be long term assets.

If I intend anything to be kept short term then I will keep it outside of the company

Its the share bit Id love some advice on - Cheers

John_Pierpoint

Please don't assume that I know anything about this section of company taxation - but have a read round this area of the law and taxation, you appear to be creating a money box that does not actually do anything.
It might be useful to be able to talk the talk:

You could start here and work forwards (my bolding of type face)

http://www.hmrc.gov.uk/manuals/ctmanual/ctm60055.htm


CTM60055 - Close companies: general: introduction

A company controlled by a small group of persons may arrange its affairs to enable those persons to avoid income tax. Legislation to prevent this form of avoidance was first introduced as long ago as 1922, but since 1965 the counter measures have been provided by the 'close company' provisions. These provisions:

• define a 'close' company,
• extend the meaning of 'distributions' to encompass certain benefits which may be disguised distributions of profit to the shareholders or their families,
• impose tax in respect of certain loans made to shareholders, etc, which could in practice represent the extraction of profits without the payment of tax by the shareholders, etc
• impose certain restrictions on close companies which are close investment holding companies (CTM60700 onwards).

Livethedream_2

Its certainly not to avoid tax as you put it.

Its called tax planning and being tax efficient I think so not sure it falls foul of this

John_Pierpoint

Where have I mentioned avoiding tax?

But avoiding taxes is exactly what HMRC is going to assume you are try to do. There might be other rational explanations - for example you are proposing to live in an unstable part of the word and when the people's government decides to nationalise your wealth, you will simply wave a share certificate at them.
The proposal is to create a close investment company - nothing wrong with that but the rules are slightly different from those for a normal trading company.