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Dear all,

 

Thanks in advance for any advice.

 

My partner and I have a limited company with excess cash that we don't need. I would like to invest this money in the most tax effective way possible. I would like to invest this money in property.

 

Does anyone have any ideas on this? Could I buy a property in the company's name? My accountant mentioned loaning the money to another limited company and buying with that company? 

 

Any advice would be greatly appreciated.

 

thanks, Andrew

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  • 4 weeks later...

Hi,

 

I am looking to do exactly this in the near future. My FA and Mortgage Broker made this recommendation for my situation.I do not have enough in my Contracting Co. to seed a property investment wholly so my how I'm using this is slightly different but same process applies. I'll post more details as I get them confirmed but my situation will look like this at a high level:

 

- I am taking equity out of my residential property (amount=X)

- I place amount X into the newly formed Property Ltd Co. as a directors loan which acts as seed money to buy properties

 

Obviously I need to service the extra mortgage amount on my residential property. So....

- I lend monies from my Contracting Ltd Co. to my Property Ltd. Co.

- I draw down from my Property Co., against the directors loan amount, enough each month to service the extra mortgage payments.

- Basically I service the extra mortgage with Tax free cash and will aim to over pay to clear down the extra mortgage as soon as possible so as to avoid paying too much interest.

 

As I said, I'm still getting all the details on this as I don't know if there is any limits on how much can be loaned across or how often, or what kind of rate (although you are loaning/paying yourself right)

 

Happy to update once I have true figures and details figured out. Hope this helps.. or at least was of interest :)

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I am just creating me new Limited property company for new purchases which I will rent out ( no trading ), I have an IT Ltd company for a number of years with a cash pot available. I will transfer funds from my IT Co to my property company to fund a property cash purchase. I have been reading up on this a lot and thought I had all my ducks lined up. Then a slight curve ball ? ( which may be nothing but has thrown me slightly )

 

I said to my accountant - so I am under the impression I will need to pay interest back to my IT ltd company at a commercial rate ( say 2% ) - However It was recomended that if the property company was set up as a subsiduary of my IT Company - which what I can gather is the share split etc in my IT company governors my property ltd company. No interest would need to be paid and this was the safest option from a tax point of view.

 

Anybody else structured this way ie new property co a subsiduary of existing business ltd company for cash transfers.....   

mark-morris.jpg

The Manchester Meetup takes place on the first Thursday of every month, find out more here

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  • 3 weeks later...
On 29/01/2017 at 4:42 PM, andrew wilson said:

Hello,

 

From my research, it seems that loaning money from old company to a new limited company is the best way to do this.

 

I am due to have a chat with my accountant in the next week or so but this was his initial suggestion and my research seems to have confirmed it.

What's the benefit of loaning the money from the existing limited company to a new company? Why not buy under the existing company?

 

I was told by my accountant/ broker that historically lenders prefer Special Purpose Vehicles but they are now open to lending to limited companies.

 

Many thanks

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On 30/01/2017 at 8:53 PM, Mark Morris said:

I am just creating me new Limited property company for new purchases which I will rent out ( no trading ), I have an IT Ltd company for a number of years with a cash pot available. I will transfer funds from my IT Co to my property company to fund a property cash purchase. I have been reading up on this a lot and thought I had all my ducks lined up. Then a slight curve ball ? ( which may be nothing but has thrown me slightly )

 

I said to my accountant - so I am under the impression I will need to pay interest back to my IT ltd company at a commercial rate ( say 2% ) - However It was recomended that if the property company was set up as a subsiduary of my IT Company - which what I can gather is the share split etc in my IT company governors my property ltd company. No interest would need to be paid and this was the safest option from a tax point of view.

 

Anybody else structured this way ie new property co a subsiduary of existing business ltd company for cash transfers.....   

Just working through the detail with my accountant and broker. My accountant has advised me high level to use my existing limited company to purchase the BTL. The only implication from my understanding is the higher interest rate for a limited company mortgage.

 

2nd paragraph was also recommended by my accountant but he mentioned the implication of "associated companies". Unsure if this will impact me on day 1 or something in the future with tax planning. Again another point that I need to close down.

 

Will be great if anyone has gone through our situation and explain the "why"

 

Cheers  

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  • 2 weeks later...

Hi Ray,

 

Sorry only just spotted this. My accountant told me it was a no no for me to buy property in my IT Limited Company. Incorrect SIC code classification, also mortgage companies would require the correct SIC code in order to lend. I think there are other reasons why its not recommended.

 

I have now setup my company as a subsiduary and I am just opening my company account. Apparently your SIC code can be amended and only needs confirming when you file you first annual return.

 

Cheers

 

mark-morris.jpg

The Manchester Meetup takes place on the first Thursday of every month, find out more here

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22 hours ago, Mark Morris said:

Hi Ray,

 

Sorry only just spotted this. My accountant told me it was a no no for me to buy property in my IT Limited Company. Incorrect SIC code classification, also mortgage companies would require the correct SIC code in order to lend. I think there are other reasons why its not recommended.

 

I have now setup my company as a subsiduary and I am just opening my company account. Apparently your SIC code can be amended and only needs confirming when you file you first annual return.

 

Cheers

 

Thanks, do you know why your accountant has advised on a subsidiary and what are the benefits/ pitfalls?

 

Trying to gather as much information as I can before I speak to my accountant.

 

Regards

Ray

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  • 2 weeks later...

Hi Mark

 

My accountant seemed to advise the opposite and to form a parent company, rather than a subsidiary. My problem was that my consulting company uses flat rate VAT scheme so rent would have been vatable. Forming a holding company, with a different share class, meant that I could pass profits from consulting company to holding company without any tax being payable. This is obviously a permanent distribution rather than a loan which means that the remaining profits in consulting co are 'mine' and I have cash to pay them down when I need to.

 

hope this helps

 

Daryl

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Hi Daryl,

 

Thanks

 

I have gone back to my accountant to be sure to be sure. I aslo have a IT ltd company on the flat rate scheme and just set up my property limited company - this was there response

 

Good afternoon Mark

 

Apologies for the delay to the response to your query.

 

I can confirm that HKMC Properties is a subsidiary of HKMC Solutions.

 

As the loan is from the parent to the subsidiary, this is categorised as an inter-company loan and no interest needs to be repaid.  

 

Kind regards

 

Bethany

 

May be its a technicality and no real differerence. Anyhow I am proceeding on this basis. Wish me luck !! :-)

mark-morris.jpg

The Manchester Meetup takes place on the first Thursday of every month, find out more here

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12 hours ago, Mark Morris said:

May be its a technicality and no real differerence. Anyhow I am proceeding on this basis. Wish me luck !! :-)

 

I don't think there's much impact - certainly nothing wrong with the way you're doing it. Best of luck!!

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  • 2 weeks later...
On 06/03/2017 at 3:10 PM, Daryl Leeds said:

My accountant seemed to advise the opposite and to form a parent company, rather than a subsidiary. My problem was that my consulting company uses flat rate VAT scheme so rent would have been vatable. Forming a holding company, with a different share class, meant that I could pass profits from consulting company to holding company without any tax being payable. This is obviously a permanent distribution rather than a loan which means that the remaining profits in consulting co are 'mine' and I have cash to pay them down when I need to.

 
 

Hi Daryl,

I've been interested in setting up a property investment company as well. Initially, my accountant said it is best to arrange for a loan between companies. I have then asked another accountant for advice and was told it's best to split shares of my consulting company into A and B grade shares. A-grade voting shares would be used to pay a dividend to myself, B grade shares would be non-voting shares which would be used to issue dividends to the property investment company. By transferring money between companies via dividends rather than loan I would be protected in case the consulting company has to close. I was told that shares between companies would not incur any tax charges.

 

My accountant provided the following answer for setting up loan between consulting and property companies:

"Any loan between the company 1 and company 2 will be subject to an interest being charged. So the interest being paid by company 2 will be an expense for company 2 and interest received by company 1 will be taxable income.

If there is still an unpaid loan at the time of the closure of the company 1, this unpaid loan can be treated as part of your capital distribution and then will be treated as introduction of your capital in the investment company (i.e. your loan to the investment company) This will mean that amount of unpaid loan will become a part of your capital gain (personal) and will be taxable at 10% on your personal tax return "

 

I hope this helps!

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  • 5 weeks later...

@Mark Morris Hi Mark; I just thought I'd update you on my research which is that mortgage companies have a strong preference for a non-holding company to make the investment, i.e. your structure looks better. Since I've already bought a couple of properties for cash in my holding company, I'm going to rename and demote it! I'll form a new holding company which will hold shares in my consulting co and property co. I'll pay dividends up to the parent and lend them to the property co.

I've still to complete my research on whether an inter-company loan MUST be interest-bearing. There seem to be differing opinions on this thread.

All the best

Daryl

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  • 2 weeks later...
On 30/01/2017 at 1:54 PM, david hailey said:

Hi,

 

I am looking to do exactly this in the near future. My FA and Mortgage Broker made this recommendation for my situation.I do not have enough in my Contracting Co. to seed a property investment wholly so my how I'm using this is slightly different but same process applies. I'll post more details as I get them confirmed but my situation will look like this at a high level:

 

- I am taking equity out of my residential property (amount=X)

- I place amount X into the newly formed Property Ltd Co. as a directors loan which acts as seed money to buy properties

 

Obviously I need to service the extra mortgage amount on my residential property. So....

- I lend monies from my Contracting Ltd Co. to my Property Ltd. Co.

- I draw down from my Property Co., against the directors loan amount, enough each month to service the extra mortgage payments.

- Basically I service the extra mortgage with Tax free cash and will aim to over pay to clear down the extra mortgage as soon as possible so as to avoid paying too much interest.

 

As I said, I'm still getting all the details on this as I don't know if there is any limits on how much can be loaned across or how often, or what kind of rate (although you are loaning/paying yourself right)

 

Happy to update once I have true figures and details figured out. Hope this helps.. or at least was of interest :)

 

Hi All

 

As an update to this.....

Company structure has been set up as follows; Existing Contracting Co. New Property Co., and finally New Holding Co. which has 100% ownership of both the Contracting and Property Co.

 

I am able to move money between the companies via the holding company at will (not any losses). These are not loans, simply a move of capital

The equity I took from my house to invest has been placed into the holding company as a directors loan and then moved to the Property Co. to invest.

Earnings from the Contractor company can be moved to the holding company and drawn down against the directors loan (tax free so very tax efficient) until the directors loan is depleted

Any access funds from the contractor Co. can be moved to the property Co, via the holding Co.

 

Hope this helps

 

 

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  • 2 weeks later...

Hi David,

 

Your approach appears to be pretty sound to me. I am also looking at the best strategy for me. I have cash in an IT Contracting Ltd Company and are looking to invest the cash in property and would like to get my financial planning in place beforehand. I would be grateful if you could share a recommended FA and Property Ltd Company Mortgage broker. You mention that you have these and so assume that you would recommend! :).

 

Many thanks,

 

Susan

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@Susan C Hi Susan

 

very happy to recommend;

FA - Wren Sterling : http://www.wrensterling.com/

my FA is Phil Jenkins (Phil.Jenkins@wrensterling.com)

 

Mortgage Broker : https://www.charcol.co.uk/

Sister company to Wren Sterling

I have been dealing with Hemel Shah (Hemel.Shah@johncharcol.co.uk)

 

The company setup was actually suggested by my accountants, Rodliffe : http://www.rodliffeaccounting.com/

I dealt with the Managing Director, David Hughes on this (d.hughes@rodliffeaccounting.com)

Rodliffe deal with mainly contractors so they are well set up for these situations.

 

Can't recommend all these guys enough. I've had a fantastic experience with all of them. :)

 

 

 

 

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  • 8 months later...

Hi All,

 

First of all, thanks to everyone contributing into this topic. The information provided is very valuable. 

 

@david hailey @Daryl Leeds If I understood properly, the company estructure that you both have set up is similar: Holding Co + IT Co + Property Co. Would you be able to share estimated costs of a) creating such structure assuming I only have the IT Co , b) maintaining that structure (accountants, insurance, etc..). I appreciate it might depend on the accountants and services selected but it would be great to have some reference.

 

Many thanks,

Anton

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@anton g Hi Anton.  No problem

To set up the holding and property Cos my accountant simply charged me their standard Co setup admin fee. I think this came to about £50-£100, I can't remember but it wasn't much. 

Ongoing costs for me are £330 a month to fully manage the accounts for all three companies. I actually pay this via my IT Co. as there is rarely any money going through the holding company and I wanted as good a cash flow as possible in the property company to begin with.

 

As an update to some other points above;

- Be aware that as soon as you set up a holding company, you cannot take dividends directly from the child companies. Therefore, for any dividends you wish to take from your IT company beyond this point, monies need to be moved to the holding company and dividends taken from there. This can be achieved by the holding company making a Mgt charge to the IT Co. for the gross amount you wish to move (the dividend amount plus the Corp tax that would be due on this). Money leaves the IT co gross of tax so no Corp. Tax to pay in the IT Co. Money enters the Holding Co. as income, so corp tax is paid from the holding Co. leaving the net amount to draw out as a dividend. For example IT Co. makes £100 income, Holding Co. makes £100 Mgt charge to the IT Co. Holding Co now has £100 income. Holding Co. pays £19 Corp Tax. £81 left in Holding Co with which to draw dividends against.

 

- moving any monies between companies can be accounted for as "long term debtors/creditors". This can stay on the books for years with no interest to pay between companies as long as the intention is for that to be paid back at some point. For example, in my case I placed £140k in my holding company and moved this to my property Co. to be invested. Therefore Holding Co has debtors of 140K, Property Co has creditors or 140K.  When you come to the point of wanting to take income form the Property Co. you can simply move this money back from Property Co to Holding Co thus reducing the Creditor/Debtor accounts.  Be aware only monies NET of corp tax can be moved in this way. For example, £100 income in the property would pay £19 corp tax and the remaining £81 could be moved against the Creditor/Debtor account

 

Hope this all makes sense.

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Great advice on here. I have a further question for @david hailey on his setup.

 

Quote

Therefore, for any dividends you wish to take from your IT company beyond this point, monies need to be moved to the holding company and dividends taken from there. This can be achieved by the holding company making a Mgt charge to the IT Co. for the gross amount you wish to move (the dividend amount plus the Corp tax that would be due on this). Money leaves the IT co gross of tax so no Corp. Tax to pay in the IT Co. 

 

What about the scenario where IT co already has a fair chunk of money saved up on which corporation tax has already been paid. Is there any way to get around paying a second round of corporation tax on moving the money up to the holding company?

 

Tom

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@tkgregory

 

12 hours ago, tkgregory said:

What about the scenario where IT co already has a fair chunk of money saved up on which corporation tax has already been paid. Is there any way to get around paying a second round of corporation tax on moving the money up to the holding company?

 

Hi Tom.  I have no idea about that I'm afraid.  One for your accountant to answer

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Hi,

 

I posted my set-up earlier in the thread ie My IT limited company loans to my newly formed Property Ltd company (which is a subsidiary). There is no interest to be repaid and no double corporation tax liability. I only pay corporation tax on any profits .

 

I am now actively operating this way going forward ie  have loaned money to my property ltd co money and purchased my first ltd co property. It seems to be working ok and the Property hub tax review I had recently ( which I can highly recommend ) confirmed this approach. 

 

Hope this helps.

mark-morris.jpg

The Manchester Meetup takes place on the first Thursday of every month, find out more here

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