Freehold Company Limited by Shares - How do new owners get their share certificates

Bookworm105

carl_h said:

poseidon1 said:

carl_h said:

Thanks. Is the freehold company you administer limited by guarantee?

No, we are the limited by the nominal value of our £1 shareholdings. 

Incidentally to avoid the hassle of filing 'active' company annual accounts we have no company bank account, and  conduct administration at joint leaseholder level, eg  I pay for buildings insurance cover taken out in the name of the company and co lessors reimburse me. 

Therefore able to file annual 'dormant' company accounts on that basis. Worth thinking about, since if none of you have accountancy experience, preparation of formal company accounts together with lodging potential corporation tax returns, will be a burden best avoided.

We have 50 flats but 5 opted out & still pay ground rent. Where would this "income" go if there is no company account? We have a Management Company for maintenance etc. Would this "income" be directed to their account & used to offset other costs?

if that "income" goes into a bank account in someone's personal name good luck unpicking it if HMRC ever assess it for income tax on said person.

For your size of operation bite the bullet and do it properly via the company.

poseidon1

carl_h said:

poseidon1 said:

carl_h said:

Thanks. Is the freehold company you administer limited by guarantee?

No, we are the limited by the nominal value of our £1 shareholdings. 

Incidentally to avoid the hassle of filing 'active' company annual accounts we have no company bank account, and  conduct administration at joint leaseholder level, eg  I pay for buildings insurance cover taken out in the name of the company and co lessors reimburse me. 

Therefore able to file annual 'dormant' company accounts on that basis. Worth thinking about, since if none of you have accountancy experience, preparation of formal company accounts together with lodging potential corporation tax returns, will be a burden best avoided.

We have 50 flats but 5 opted out & still pay ground rent. Where would this "income" go if there is no company account? We have a Management Company for maintenance etc. Would this "income" be directed to their account & used to offset other costs?

That would have been useful to have stated from the outset.

In that scenario I would  not dream of taking on the administration myself, but being a bit of a control freak i would never have bought into such a large block in the first place.

Ours is just a small 4 flat house conversion with all leaseholders properly engaged in ensuring the smooth running of the building. 50 different dwellings with some possibly let out by non resident owners would be my idea of an administrative nightmare.

In your case, forget trying to run it yourself, you need to outsource to a professional hands on management company and formal accounts and balance sheets prepared annually by their in house accountant, or an accountant you retain separately.

Your company may have corporation tax payable on the ground rent payable, and in view of the size of the building no doubt some form of sinking fund may be required as a reserve for large one off repairs etc.  That fund may well be earning taxable bank interest.

 The company  balance sheet may also have a residual value for the 5 lessees who opted out ( the 'marriage value' of their declining leases) , together with a separate value for the ground rental stream you all opted to continue paying ( we erased ground rents and have 995 year leases ).

Notwithstanding, my recommending you outsource management and compliance entirely, you should still attend a free course to ensure you have a solid understanding of what the management company should be doing, and understand what you ( as director)  are seeing when signing off annual accounts.

Actually a block this size should have already had block management in place, so there should be some form of handover of their records ( and accounts) coming your way.

As directors, the buck firmly  stops with you guys if anything goes wrong and with a block the size of yours there is plenty that can go awry.  I am a little surprised you guys wandered into this responsibility with little or no idea of what it all entails. No advice forthcoming from the solicitor or the consulting valuation surveyor?

In any event you urgently need to commence setting up a 'beauty parade' to select a suitable management company asap. 

Frankly, and with all due respect, rather you than me!

poseidon1

poseidon1 said:

carl_h said:

poseidon1 said:

carl_h said:

Thanks. Is the freehold company you administer limited by guarantee?

No, we are the limited by the nominal value of our £1 shareholdings. 

Incidentally to avoid the hassle of filing 'active' company annual accounts we have no company bank account, and  conduct administration at joint leaseholder level, eg  I pay for buildings insurance cover taken out in the name of the company and co lessors reimburse me. 

Therefore able to file annual 'dormant' company accounts on that basis. Worth thinking about, since if none of you have accountancy experience, preparation of formal company accounts together with lodging potential corporation tax returns, will be a burden best avoided.

We have 50 flats but 5 opted out & still pay ground rent. Where would this "income" go if there is no company account? We have a Management Company for maintenance etc. Would this "income" be directed to their account & used to offset other costs?

That would have been useful to have stated from the outset.

In that scenario I would  not dream of taking on the administration myself, but being a bit of a control freak i would never have bought into such a large block in the first place.

Ours is just a small 4 flat house conversion with all leaseholders properly engaged in ensuring the smooth running of the building. 50 different dwellings with some possibly let out by non resident owners would be my idea of an administrative nightmare.

In your case, forget trying to run it yourself, you need to outsource to a professional hands on management company and formal accounts and balance sheets prepared annually by their in house accountant, or an accountant you retain separately.

Your company may have corporation tax payable on the ground rent payable, and in view of the size of the building no doubt some form of sinking fund may be required as a reserve for large one off repairs etc.  That fund may well be earning taxable bank interest.

 The company  balance sheet may also have a residual value for the 5 lessees who opted out ( the 'marriage value' of their declining leases) , together with a separate value for the ground rental stream you all opted to continue paying ( we erased ground rents and have 995 year leases ).

Notwithstanding, my recommending you outsource management and compliance entirely, you should still attend a free course to ensure you have a solid understanding of what the management company should be doing, and understand what you ( as director)  are seeing when signing off annual accounts.

Actually a block this size should have already had block management in place, so there should be some form of handover of their records ( and accounts) coming your way.

As directors, the buck firmly  stops with you guys if anything goes wrong and with a block the size of yours there is plenty that can go awry.  I am a little surprised you guys wandered into this responsibility with little or no idea of what it all entails. No advice forthcoming from the solicitor or the consulting valuation surveyor?

In any event you urgently need to commence setting up a 'beauty parade' to select a suitable management company asap. 

Frankly, and with all due respect, rather you than me!

My apologies just noticed there is a management company in place. In which case you just need an accountant to handle your freehold company accounts, income reporting , corporation tax and Companies House  annual compliance. Try and find a firm with significant experience in this area, 

carl_h

We have a large sinking fund handed over from the last freeholder. I believe this is sitting in an account with the Management Company. No flats will pay ground rent apart from the 5 opt-outs. It sounds like you think that the arrangement is unlikely to be accepted by Companies House/HMRC as "dormant" if we apply as the scope for taxable income cannot be eliminated. I'm not a Director I'm just a "Concerned Resident". trying to look after their interests.

I didn't understand this comment "The company  balance sheet may also have a residual value for the 5 lessees who opted out ( the 'marriage value' of their declining leases)." Is this a reference to the price the opt outs will have to pay if they opt in at some point. Would this be taxable?

poseidon1

carl_h said:

We have a large sinking fund handed over from the last freeholder. I believe this is sitting in an account with the Management Company. No flats will pay ground rent apart from the 5 opt-outs. It sounds like you think that the arrangement is unlikely to be accepted by Companies House/HMRC as "dormant" if we apply as the scope for taxable income cannot be eliminated. I'm not a Director I'm just a "Concerned Resident". trying to look after their interests.

I didn't understand this comment "The company  balance sheet may also have a residual value for the 5 lessees who opted out ( the 'marriage value' of their declining leases)." Is this a reference to the price the opt outs will have to pay if they opt in at some point. Would this be taxable?

With regard to the leases that did not participate in the freehold purchase,  depending on how short the leases are,  under current rules for lease extensions, the premium payable to the 'freeholders' to extend leases or buy freehold shares could trigger a taxable capital gain at freehold level liable to corporation tax. So freehold shares do appear to have a value separate and distinct from the underlying leases. This  however could change once all the provisions of the new Leasehold reform act is fully implemented. 

Incidentally need to correct my statement re tax liability on any interest earned on the sinking fund. These funds are not beneficially owned by the freehold company, but belong to the leaseholders to be applied against future building works. As such it is held in trust so the management company should be declaring any income from that source on a trust tax return ( not corporation tax)  - see hmrc link below

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1075#:~:text=Sinking funds involve the long,payee's capacity as a trustee.

All in all  I cannot  see how the freehold  company can be treated as dormant, given all the circumstances. A freehold company bank account seems inevitable.

Just as well you are not a director, they have an ongoing administrative and compliance burden to bear which is best offloaded into hands of  experienced professionals. Not really an area for enthusiastic amateurs to dabble in.

carl_h

The Directors are convinced that Companies House/HMRC will grant the company dormant status & have paid an accountant to carry out this & other tasks. It will be interesting to see what happens. Thanks for your help.