Buying a house with my brother - IT Contractor

ITcontractor

Hi all,

First time poster her, please be kind . I wanted some advice on helping my brother to purchase a new property:

He currently has a freehold home that is worth £300k. He is looking at purchasing home which is around £460k. He is a owner of a food establishment and has bad credit so cannot get a mortage for the new propert on his owny. He can easily pay off the mortgage though through his earnings.

I have said for him to sell the property he currently has and buy the new one but unfortunately the timings are not right and he'll miss out on the property he wants to buy.

I have my own freehold property and work as an IT contractor through my own limited company.

He has suggested that we purchase the new property together via a new limited company while he either rents or sells his current property depending on market conditions. He would live there and treat it at his home residence with me just helping him get the mortgage.

My question is, will being a director of this second limited company be an issue for me with my current IT Limited company and will it affect my earnings/taxes?

I want to help him but i don't want to potentially mess up my own credit/finances.

Is anyone able to provide any guidance?

kind regards

letitbe90

My advice firstly is don’t mix family with finance, even with the best intentions it is really not a good idea...

As for being director of another company, it won’t affect your personal tax (if you don’t draw salary or dividends from it) however you will become liable for any company taxes owed, so if your brother ends up running business through it but doesn’t pay up...

I’m sure you want to help your brother but don’t, honestly. If you get a long reeaaaaallly well, even more reason not to spoil it.

(Fellow IT contractor)

davidmcn

ITcontractor wrote: »

I have said for him to sell the property he currently has and buy the new one but unfortunately the timings are not right and he'll miss out on the property he wants to buy.

Well, life's a beach. He'll just need to wait and buy something else, rather than involve you in his plans. You can't just "help him get a mortgage", you'll be jointly and severally liable for the debt, and if the banks don't think he's a great risk, why do you want to jeopardise your own credit/finances?

tacpot12

letitbe90 is right about mixing finance and family. If you can't afford to give him the money outright, it's not a good idea.

If you really trust him, have no need to move in the next fifteen years or so yourself, I would mortgage your house to get £160K and buy 35% of the new property yourself with him paying £300K cash for his 65% share. Get a deed of trust drawn up by a solicitor to record the share you own, and on what basis your brother can purchase your share from you - you need to agree a calculation that doesn't leave you paying the interest on the loan if he doesn't make payments on time. Plan on making the mortgage payments yourself, and record when he gives you money and how much. Make sure you have a charge on the property; the solicitor will help with this. This approach will save the costs of setting up a limited company and the costs of running it, and protects you because you will always own part of the property yourself with no corporate structure to confuse matters. Your brother doesn't need to borrow if he owns the house worth £300k outright.

ethank

You want to become linked at credit reference agencies with someone who has bad credit?

If his earnings are so good, why does he have bad credit?

I'd help out my brother with a spare room for a bit if he needed it, but I would not go as far as you are thinking. This could ruin a good family relationship.

sal_III

letitbe90 wrote: »

however you will become liable for any company taxes owed, so if your brother ends up running business through it but doesn’t pay up...

No he won't that's why it's called "limited", the financial liability of the company doesn't transfer to it's shareholders or directors. Criminal liability is a different matter.

It's a non-starter anyway as no Lender will give mortgage for a residential property of all things to a newly formed company.

letitbe90

sal_III wrote: »

No he won't that's why it's called "limited", the financial liability of the company doesn't transfer to it's shareholders or directors. Criminal liability is a different matter.

It's a non-starter anyway as no Lender will give mortgage for a residential property of all things to a newly formed company.

https://www.companydebt.com/hmrc-tax-problems/can-hmrc-hold-company-director-responsible-unpaid-tax/

lisyloo

Is IR35 going to affect you business at all?
Either by being inside IR35 or your client axing contractors altogether?
Just interesting as living with this uncertainty myself.

letitbe90

lisyloo wrote: »

Is IR35 going to affect you business at all?
Either by being inside IR35 or your client axing contractors altogether?
Just interesting as living with this uncertainty myself.

They said IR35 would end public sector contracting, but it hasn’t (far from it, HMRC themselves use outside IR35 contractors) so I wouldn’t worry too much. Some companies might but it is what it is.

ITcontractor

Thanks for the responses all, much appreciated

00ec25

buying the property via a limited company where he will then live in it is a truly abysmal idea since he will then be assessed for the benefit in kind value of the rent the company should be charging him for living in the property owned by the company


you being a director of a second company has no impact on you if you do not take any money out of the second company. However, that is a pointless position.


LETS START AGAIN PLEASE
- you want to help your brother
- do you expect to make a financial profit from this help? yes or no?


No? - then loan him the money yourself and protect that loan via a charge over the property. Do not accept 1 penny more than is owed to you in repayments and therefore you will have no tax liability at all


yes? you will be deemed to have a beneficial ownership of the property. You will be taxed either via income tax on any profit you make on the loan (ie interest you charge because he pays back more than the sum loaned) or CGT because you get more than the loan sum back from the proceeds of the sale