Using my limited company to buy land to turn into my main home

Rollford26

My husband and I run a small business which is a VAT- registered limited company. We have surplus cash in the business but not in our personal accounts! We currently live in a very modest house we have never liked very much, with 50% of the mortgage still to pay.

We spotted a great development opportunity recently - a plot of land with planning permission to build a barn-style property from scratch (and drawings to go with it). We thought that we could use the surplus cash in the business to buy the land and build the property, then sell the house we currently live in when the new build is ready to move into and use the sale proceeds to buy the new build back from the company to use as our main home. We would only be able to afford to pay back to our company what it cost to build, i.e. the initial cost of the land, plus the material and labour costs and connection to utilities. In a way, this could be viewed as a loan from the company, to be paid back. We anticipate this would be a lot less than the market value of the property by the time it's finished. 

By doing this, we could not only have a much nicer house to live in but also save ourselves the cost and upheaval of living in rented accommodation whilst it is built. 

Can anyone say whether they've ever done something like this before, whether it is permitted within our tax rules, any major pitfalls etc?

Hoenir

Transactions between connected parties are deemed to take place at market value. The company will have a taxable profit to declare. 

tacpot12

It might be worth talking though the idea with your accountant. They are likely to be able to tell you whether it is a good idea very quickly. 

DullGreyGuy

Rollford26 said:

My husband and I run a small business which is a VAT- registered limited company. We have surplus cash in the business but not in our personal accounts! We currently live in a very modest house we have never liked very much, with 50% of the mortgage still to pay.

We spotted a great development opportunity recently - a plot of land with planning permission to build a barn-style property from scratch (and drawings to go with it). We thought that we could use the surplus cash in the business to buy the land and build the property, then sell the house we currently live in when the new build is ready to move into and use the sale proceeds to buy the new build back from the company to use as our main home. We would only be able to afford to pay back to our company what it cost to build, i.e. the initial cost of the land, plus the material and labour costs and connection to utilities. In a way, this could be viewed as a loan from the company, to be paid back. We anticipate this would be a lot less than the market value of the property by the time it's finished. 

By doing this, we could not only have a much nicer house to live in but also save ourselves the cost and upheaval of living in rented accommodation whilst it is built. 

Can anyone say whether they've ever done something like this before, whether it is permitted within our tax rules, any major pitfalls etc?

The company buys the land it will have to pay stamp duty 

When it sells the property to you you will have to pay stamp duty on it at the market rate not the price you pay for it. 

In its accounts it will have made a profit as it too will have to be recorded at the market value and so you'll have corporation tax to pay on that profit. Depending on your normal annual profits you would lose marginal relief on all the profits not just the profit from the same. 

Tucosalamanca

From an outsider's perspective, the thought of using your VAT registered business to build your home looks highly questionable. The potential for VAT fraud and other tax avoidance is substantial.
I'd say the idea is dubious at best, although I'm sure that some people do get away with similar schemes.

Why not take the surplus cash as dividends and do as you please?

Rollford26

Thanks everyone. I did speak to my accountant who told me pretty much what you are all saying - I just wondered if anyone knew any workarounds, as my accountant confessed that it was an area he didn't know much about. It looks like the surplus will go into our pensions instead. (Taking the surplus as dividends would attract tax at the higher rate).

Albermarle

Rollford26 said:

Thanks everyone. I did speak to my accountant who told me pretty much what you are all saying - I just wondered if anyone knew any workarounds, as my accountant confessed that it was an area he didn't know much about. It looks like the surplus will go into our pensions instead. (Taking the surplus as dividends would attract tax at the higher rate).

That sounds a much better idea.

horsewithnoname

Tucosalamanca said:

From an outsider's perspective, the thought of using your VAT registered business to build your home looks highly questionable. The potential for VAT fraud and other tax avoidance is substantial.
I'd say the idea is dubious at best, although I'm sure that some people do get away with similar schemes.

Why not take the surplus cash as dividends and do as you please?

Don’t you get VAT back off a new build, or am I getting confused?

Tucosalamanca

horsewithnoname said:

Tucosalamanca said:

From an outsider's perspective, the thought of using your VAT registered business to build your home looks highly questionable. The potential for VAT fraud and other tax avoidance is substantial.
I'd say the idea is dubious at best, although I'm sure that some people do get away with similar schemes.

Why not take the surplus cash as dividends and do as you please?

Don’t you get VAT back off a new build, or am I getting confused?

That would depend Buildings and construction (VAT Notice 708) - GOV.UK

theartfullodger

Hopefully the government (any party) will continue to crack down on these limited company fiddles..

Best regards to all.

Grumpy_chap

Rollford26 said:

My husband and I run a small business which is a VAT- registered limited company. We have surplus cash in the business but not in our personal accounts! We currently live in a very modest house we have never liked very much, with 50% of the mortgage still to pay.

We spotted a great development opportunity recently - a plot of land with planning permission to build a barn-style property from scratch (and drawings to go with it). We thought that we could use the surplus cash in the business to buy the land and build the property, then sell the house we currently live in when the new build is ready to move into and use the sale proceeds to buy the new build back from the company to use as our main home. We would only be able to afford to pay back to our company what it cost to build, i.e. the initial cost of the land, plus the material and labour costs and connection to utilities. In a way, this could be viewed as a loan from the company, to be paid back. We anticipate this would be a lot less than the market value of the property by the time it's finished. 

By doing this, we could not only have a much nicer house to live in but also save ourselves the cost and upheaval of living in rented accommodation whilst it is built. 

Can anyone say whether they've ever done something like this before, whether it is permitted within our tax rules, any major pitfalls etc?

You seem to be suggesting that your Ltd Co will diversify into a second line of business.  
In addition to the current business activities, the Ltd Co proposes to purchase some land and develop that land by building a house.
The Ltd Co will then own a brand new house.
One assumes that the Directors will act in the best interests of the Ltd Co and that the Shareholders will require that the Ltd Co realises the best value on the sale of that asset, allowing the Ltd Co to reap the rewards of the risk that was taken by the Ltd Co in undertaking this business diversification.

What is the business benefit to the Ltd Co in divesting this asset at below full market value?

SDLT will be payable by the Ltd Co on the original purchase (with the "second property" surcharge as the Ltd Co is a non-natural person).
SDLT will be payable again by the eventual purchasers of the property once it has been developed with the house.  This will be based upon the full market value of the house (but second property surcharge may be avoided if the current PPR is sold).

This project probably would be better if the OP explored ways to take drawings from the Ltd Co and then fund the purchase of the building plot and building the house from personal funds.  Given that the intention is that the newly built house will be the OP's future home.