Buying a residential property through a company

Re: VAT on company investment property

There are other issues that need to be considered in addition to the purely mathemtical ones

If you intend investing in property further, would it be personally or inthe nameof the company?
Have you considered keeping the property once the 25 year period is over?
What if you decide to sell up earlier, how will this effect your tax?

But in your case have you accounted for the company surcharge on undistributed investment income at 20%, ie €107,625 @ 20% is €21,525

This would wipe out the gain you have calculated

There are likely to be substantial costs in your situation for accounting/udit fees


stuart@buyingtolet.ie

Re: VAT on company investment property

Let's make the conclusion absolutely clear at this stage for those who don't have time to go through the figures.

It makes no sense, financial or otherwise, for a company to buy a property. It is always better for an individual to do so in his or her own name.

This is the conclusion of three qualified accountants - Ubi, Stuart and myself. It is also the belief of every other accountant I have met.

I don't follow your figures and assumptions Jason, and I don't have the time to do the exercize again. But when anyone has done this and has had their figures checked, it works out better to buy the house personally.

Some problems with your assumptions:
You don't appear to have allowed for Surcharge on Rental income as Stuart has pointed out.
You charge 47% on taking the cash out now, but only 20% on the CGT in 25 years time.
You make no allowance for the possibility that CGT may well be higher in 25 years time. Yes, it could also be lower.
If you die during the 25 years, there would be no CGT on the disposal of the house if it's in your name.
Your rental income on the house will exceed your mortgage interest at some stage. If it's in the company it's going to get hammered for tax, or you will have to pay it out as salary.
You don't appear to have allowed for the costs of running a company and the costs of liquidating a company which owns a property.
You assume that the interest rate charged to a company and an individual will be the same - 3%. I would think that an individual would have more scope for getting a better deal.
If you want to gift it to a child or friend at some later stage, they will probably not be able to avail of the reliefs available on inter-family gifts.

But let's say that you can deal with all these assumptions...

You are still better off by only 18k. Is it worth all the hassle?

I very much doubt it.
Owning a property in your own name is very flexible.
You can add your wife's name to it at a later stage if you want to .
After a few years you will have good equity, so you will be able to borrow against it easily.
You will probably get more favourable treatment in any court case or rental arbitration as an individual rather than a company.
You can let your kids or friends move into it rent-free and not incur a BIK problem.

Just in case anyone is in any doubt...

It makes no sense, financial or otherwise, for a company to buy a property. It is always better for an individual to do so in his or her own name.

thanks brendan i'm now leaning to your way of thinking . it does make more sense alright.

i want to withdraw say 80k from the company . how much tax will i have to pay to get this . (is it 47% or less) and do i have to pay this tax straight away or at the end of the year.

The tax should be at 47% if you are a high rate tax payer (42% tax and 5% PRSI)

That is €37,600

You should consider borrowing the money, i.e increase the amount of the mortgage

There would be no tax to pay, but additional interest each year
Currently it would cost around €2,800 pa (80k @3.5%)

Another option could be to set up a SSAPS (small self-administered pension scheme)
This is a very specialised areas and professional advice should be sought
But it can be a very tax efficient way of releasing cash from a company for property investment (long term)

stuart@buyingtolet.ie

I think it's worth looking at the SSAP option, but I don't think it would work in this case as the company already has the money and so would not get tax relief on paying it out. The best thing would appear to be to pay it to yourself and suffer the hit. If you are investing it in a property, you will simply have to borrow a bit more to fund the property.

Brendan

thanks for the quick response
i am a high rate tax payer but when would i have to pay this tax . immediately or at end of tax year

thanks again

As a director, you are subject to PAYE like anyone else. You pay the tax when you pay yourself a salary.

Brendan

Was with my solicitor today and have put the house in my own name . it should be all signed up in september. thanks to all for the great advice especially brendan . keep up the good work..

Hi oaky

Well done. It's nice to hear someone getting good information on Askaboutmoney and making a better decision as a result of it.

Brendan