Can I build a house with my Ltd company funds?

Pythagorous

Hi guys

I have a Ltd company with about £100k in retained earnings. I also personally own a plot of land (as well as my main residential) with foundations already in place. I would like to build a small holiday cottage on the land and rent it out for part of the year. I don't have the personal funds to do this (and I don't want to extract the company retained earnings due to tax implications).

My questions are...

- is it possible/legal to build the house using the company funds and retain it as a company asset (the company was set up for financial services, so this would be diversifying)?
- Would I need the ltd co to purchase the land from myself?

Appreciate any thoughts, thanks.

Pennywise

Yes
Not necessarily

Just remember that a company is only a temporary tax shelter. As you've found, you've paid less tax on your main trading income, but the profits are trapped and you have tax to pay on withdrawing them. The same will happen with your new proposal. OK short term, but long term, the profits (past and future) are still trapped in the company and you'll have the double taxation when you come to sell the property in the future. So, think of the company has a "tax deferment" vehicle rather than a tax reduction vehicle.

paddyrg

And you'll also need to be able to demonstrate clearly what is the company's and what is your personal, and that you're not trying to diddle the tax man (who will probably take an interest just to make sure). If you sell the land to the company, you may line up problems if you do it for (say) £1, or vice versa. You really need clear tax advice on this, I'm sure your accountant can suggest a tax advisor.

antrobus

paddyrg wrote: »

... If you sell the land to the company, you may line up problems if you do it for (say) £1, or vice versa. ...

I'm not so sure it would create a 'problem' as such; more of a case that it wouldn't matter. The OP and his company would be I believe count as 'connected persons' and HMRC would impose the market value for CGT purposes. Which might lead the OP with a CGT bill depending on what he paid for the land; a plot of land with foundations must have planning permission, so it's got to be worth something.

Pythagorous wrote: »

...- Would I need the ltd co to purchase the land from myself?....

That would be the most straighforward option. If the Ltd just built the property on the land you owned, HRMC might well treat the expenditure as if you had extracted the funds and tax you on it.

The only other option would be for you and your company to enter into a partnership for this business venture. That might work, but you would have to take advice from a professional. Don't take my word for it.