Key Post Key Post: Buying premises through the company or personally?

Brendan Burgess

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But you are missing the point completely. Where did the cash of €1m come from to buy the property? You have already paid 12.5% Corporation Tax on it. If you don't need the property for your business and you rent it out, you will be paying 25% Corporation Tax on it and Investment Income surcharges.

If you had taken the money out of the company, you could be investing it tax efficiently. You are arguing that 12.5% is lower than 46%, therefore you are paying less tax by leaving it in the company.
 

Importer

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Brendan I think you're moving on to another discussion now, namely the revenue streams from the property (if any)and the tax treatment of these.
I'm not going to show my hand on a public forum but quite honestly there are few issues of concern there.

OK Lets leave it ........... Thanks for the good discussion
 

Importer

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Brendan

If I can summarise the position as I now understand it from you.

You believe its better to take your money out of the company more or less as its earned to avoid corporation tax of 12.5% and subsequent surcharges. Your assumptions are largely based on an idea that withdrawal of funds will be ultimately at 46% rate

My argument to you is that its ok to build up capital and property within a company even if you have paid 12.5% corporation tax on it already and to a degree surcharges (for service companies) because there is a mechanism to take out accumulated reserves through a voluntary members liquidation where the effective tax rate is only 20%
 

Brendan Burgess

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Correct. And this is a separate topic from this Key Post which is about property. That issue is discussed at length elswhere on Askaboutmoney.

Brendan
 
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rabbit

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there is a mechanism to take out accumulated reserves through a voluntary members liquidation where the effective tax rate is only 20%
Can you explain how this works please ? Something to do with dividends perhaps ?

In a scenario where a property is now worth say 3 million and sells in 2008 for 3 million, having being bought for the equivalent of say € 50,000 euro 40 years ago. The property is the sole asset of a company , and the directors want to sell the property and pay whatever taxes. The business has ceased and the directors want to liquidate ( or otherwise " get rid of " ) the company and retire. There will be 20% CGT on the rise in value of the property....say a CGT liability of € 560,000 , allowing for indexation. Then I thought to get their hands on the € 2,440,000 left in the company the directors will pay 46% tax / levies ?
 

ubiquitous

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In a liquidation, the shares are liquidated and its property passes to the shareholders. The shareholders will face a 20% CGT charge on the increase in the value of the shares from their original issue to today (which is €3m, represented by the value of the property). They can then proceed to sell the property and (assuming the property value does not increase in the meantime) they can pocket the €3m without any further CGT liability.

This represents a massive saving on the combination of the CGT payable by the company and income tax/levies etc for directors per the alternative approach in your example.

Assuming this is the case you have referred to in other threads, ie where "the accountant originally advised that the property be put in the company's name", you should really put your prejudices aside and get proper expert tax advice on your options at this stage. Your options are much wider than you think. And IF an accountant gave you or others "bad advice" 40 years ago, you should not allow feelings on this matter to limit your options now. :)
 
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rabbit

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Assuming this is the case you have referred to in other threads, ie where "the accountant originally advised that the property be put in the company's name", you should really put your prejudices aside

You should not assume anything. I do not have a property worth 3 million - if I had I would probably be somehere on a sunny beach now - and I merely illustrated an example / scenario , which could equally apply to a propert worth 1 million or 10 million. Neither do I have prejudices, thank you all the same.

To get back to the point / scenario , if the shares are liquidated and its property passes to the shareholders....as you say ...and the shareholders will face a 20% CGT charge on the increase in the value of the shares from their original issue to today (which is €3m, represented by the value of the property). Surely there are other taxes to be paid if the shareholders in the company were to "get their hands" on the value of the property? What about CGT within the company on the rise in value of
its asset ( the property) if the company was to be liquidated ?

I would find it difficult to believe if a company has acquired an asset ( eg its property ) worth 3 million ( which it has done over time eg 30 ,40 or 50 years ), it can be liquidated ( lets assume for simplicity the company has no trading business, and no other assets or liabilities ) , the asset sold and the 3 million euro cash given to its shareholders and the only tax anyone pays is 20% CGT by the shareholders.

Also, if the ownership of the property passes from the company to individual(s) after the company has been liquidated, would stamp duty @ 9% not be payable on this transfer ?
 

Importer

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Hey Rabbit, I think you have all the amunition you need now. Might be worth paying 500 bucks to your local friendly accountant / tax adviser to put some meat on the bones.........................
 

Brendan Burgess

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Folks

This is a Key Post about a very important issue.

Please observe the posting guidelines and treat others with respect.

I don't want a Key Post destroyed by inappropriate comments.

If someone does make inappropriate comments, just ignore them. The posts will be deleted and the user will be warned.

brendan
 

John Rambo

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Just to get back onto topic how do people feel about the risk of liquidation/bankrupty? Given the world we live in, businesses can degenerate quite quickly. This is an important consideration as if the property asset is held by the company it will be snaffled by the Revenue/creditors in a bankrupty scenario. If it's owned by the individual(s) on the other hand, the building generally will not enter the equation.
 

ubiquitous

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Given the world we live in, businesses can degenerate quite quickly. This is an important consideration as if the property asset is held by the company it will be snaffled by the Revenue/creditors in a bankrupty scenario. If it's owned by the individual(s) on the other hand, the building generally will not enter the equation.
It will if the directors have given property deeds and/or personal guarantees to the banks as security against corporate borrowings, as is quite common
 
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rabbit

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This is an important consideration as if the property asset is held by the company it will be snaffled by the Revenue/creditors in a bankrupty scenario. If it's owned by the individual(s) on the other hand, the building generally will not enter the equation.
I agree and that point has being made previously eg by somebody who said "My biggest fear actually of keeping a property within the company would be that my creditors would have a call on it if my business were to fail".

To get back to the point, in the hypothetical situation discussed a few posts ago, can the shareholders really take an asset worth 3 million from the company ( which lets say the company acquired for € 100,000 years ago ) and only pay 20% tax like that, with no other tax payable by themselves or the company... ? I don't want a Key Post destroyed by inappropriate comments, so I am directing it at the wider community, rather than the person who made the statement. ( I do not know or care about the careers or backgrounds of individual posters. )

Withdrawing the value of the property from a limited company, and the tax implications, is a question central to the whole argument, which is quite interesting, and well done to the original poster for highlighting the issue. I do not wish to offend anybody and its an interesting subject. Thank you to those who have replied and contributed.
 

TripleA

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I know this isnt exactly what Brendan had in mind in his original post but i think that the discussion has become wider than that now.
There is a scenario whereby one who reaches retirement age can dispose of their shares in the company for up to €750,000 and receive this tax free. If its one cent greater than €750K then the entire amount would be taxable at 20% CGT. Again, this is on the premise that you are "selling" the shares and not the assets.

I firmly believe it is better to buy a property in your own name and rent to the Company. But if you are in the reverse situation there are still options. When dealing with such high sums of money one should really get qualified professional advice. It may cost a few bob but it should be money well spent.
 

TripleA

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To get back to the point, in the hypothetical situation discussed a few posts ago, can the shareholders really take an asset worth 3 million from the company ( which lets say the company acquired for € 100,000 years ago ) and only pay 20% tax like that, with no other tax payable by themselves or the company... ?

This is a very technical area and before i reply i will strongly advise that due to the significant amounts of case law involved you should seek individual advice on an individual case by case basis.

But in this hypothetical situation these are the scenario's that can happen:

a) Company Disposes of Premises and then Disposes of Shares
The Company disposes of the premises and will incurr a CGT Liability of 20% on the Gain. Then the Shareholder disposes of their shares, they in turn will incurr a liability of 20% on their gain. i.e taxed twice as you would expect.

b) The Company goes into a Solvent Voluntary Liquidation
The Company appoint a liquidator. The Liquidator takes control of all the assets and liabilities of that Company. The Liquidator disposes of the Premises. The Company incurr's a CGT liability of 20% on the sale (same as scenario a) above). Then the Shareholder will dispose of the shares and they in turn will incurr a CGT liability on their gain. Where the difference arises is that the Shareholder can utilise the CGT Paid on the premises within the Company as a Tax Credit against their personal CGT Liability. Effectively meaning that the disposal of the premises is only taxed once.


Again, this is a very broad narrative of an extremely complicated area.
 
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rabbit

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Thank you for that. I never knew a Shareholder could utilise the CGT Paid on the premises within a Company ( gone in to liquidation ) as a Tax Credit against their personal CGT Liability ..... interesting.
 

Brendan Burgess

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Triple A

That is very informative indeed.

Is there stamp duty on the transfer of the property to the shareholder in the liquidation?

If A Ltd is a €2 company and buys a property for €400k and sells it for €1m. I am assuming no other assets or liabilities. Retained profits have been used to pay off the mortage.

It will pay CGT on the €600k profit - €120k.

The person will pay CGT on the sales proceeds - €200k, but this will be reduced to €80k. Is that correct?
 

Raul

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Raul

This is a Key Post and not designed to be side tracked by individual questions.

You might learn some key principles from this Key Post, but your situation needs professional tax advice.

Brendan
Administrator
 

TripleA

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If A Ltd is a €2 company and buys a property for €400k and sells it for €1m. I am assuming no other assets or liabilities. Retained profits have been used to pay off the mortage.

It will pay CGT on the €600k profit - €120k.

The person will pay CGT on the sales proceeds - €200k, but this will be reduced to €80k. Is that correct?
Yes, the company will have to pay €120K on ths disposal of the premises.

The individual will then dispose of all the assets and liabilities remaining in the company.

If at this stage their is a million, they will pay the €200K less the credit received for the CGT on the property of €80K.

So in effect (in this simplistic example). The Company pays €120K on disposal of property. And the individual pays €80K on the liquidation of the Company.
 
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rabbit

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The individual will then dispose of all the assets and liabilities remaining in the company.
If the company is in voluntary liquidation, as in the example above, is it not the liquidator who disposes of the assets remaining in the company eg the property ? And why should the ex-shareholder of the company be able to avail of the credit received for the CGT on the property of €80K ?
 

TripleA

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Yes it is the Liquidator who disposes of them on behalf of the individual who suffers the tax.
 
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