I have followed this excellent thread as best I can and I have a question:
Say the property is owned 2/3 by parent and 1/6 each by only 2 children and all three are involved in running a business from the premises, is there a tax efficient way for that parent to pass the property to her children or is it one of the times it would be better for the company to own the premises and transfer shares in the company to the children gradually before mother's death (hopefully a long long time away!)?
Would this decision be influenced by the premises having a residential component which is let out?
I have read all the posts in this thread and have found them very informative, I believe 95% are in agreement that to purchase your property privately and have the company rent it from you is the way to go. However, just to put a spanner in the works... how about a leased property?
I own a limited company and we trade from a leased premises in a shopping mall. The lease is in my parents names and we have decided to reassign the lease to either myself or the company. Up to reading this thread I was going to let the company have it but now I'm not so sure as it is an asset just like a property and would have a value to me (key money).
However unlike a property that can be boarded up and left untill a buyer is found a landlord still has a contract for rent and service charges that I would be liable for. (not cheap)
So maybe not so cut and dry now.
no point in telling me that "more than likely I would be able to sell the lease quickly even if I had to reduce the valuation price" I have a difficult landlord and am aware he/it would not accept most as tenants,(I know it's illegal to unreasonably refuse a new assignment of a lease but the landlord is not afraid of going to court in order to cause protracted argument if he/it wants too)-could scare off likely buyers.
Also would I or the company have to pay cgt on the lease? this may be a question for another forum. if it is ignore the question and i'll find where to put it later.
Hi again, Don't know how long is reasonable to wait before bumping up a post but i would ask anyone with a view the above to post it as i'm very afraid of overlooking some factor which could affect me in the future, .. thanks again.
My solicitor says its an accountants question and my accountant says its a solicitors??!!! Thanks for the clarity guys.
I know it's been 5 years since the last post but feel compelled to post.
Due to the changes in the finance act in the past few years buying the premises yourself is far far far less advantageous. The reason being the 'rent' you as owner of the property will receive from the company ( your company) will be treated as income and taxed appropriately. Even if all the rent you are receiving is being given over to the bank in the firm of mortgage repayments you will still pay tax on the received rent. So your personal tax bill will go through the roof.
I presume you are referring to the high earners restriction, the principle of rent being a taxable source of income has not changed in years. Due to the long term nature of this area is difficult to get clarity, rates above are 20% for CGT they are now 33%! With the low rate of CT for companies I think that there is merit in looking at option.
So let's look at an example referred to earlier:
Company purchases property for €1m borrowed with repayments of 100k pa
Total repay less tax| 1.262m
So the property is paid for in 13 years.
Take the alternative the director buys the property but the company can only pays rent of 100k like the repayments above. So he borrows 700k cap and int and 300k int only.
Int only repay|12k
So the cap + int loan is paid for after 20 years but the int only is still o/s.
Option 1. (If anyone can clarify the relief that TripleA refers to that would be great I have not come across it)
So the property is disposed of after 20 years for say 2m the company pays 33% on the gain 330k, then the shareholder takes it out at CGT rates left with 1.118k. To maintain consistency between the two options, the company put the 100k from year 13 onwards on deposit, it also put the corporation tax saved because of interest paid on deposit. So it had 770k on deposit which the shareholder took, netting him 516k. Total €1.634.
The property is disposed of after 20 years for say 2m the director pay 33% on the gain 330k and pays off the loan of 300k and is left with the balance 1,370k. But again the company put the tax it saved because of the rent paid on deposit, so it had 292k in a deposit account that the director took, netting him 176k. Total €1,546.
But consider another option
So the property is disposed of after 20 years for say 3m the company pays 33% on the gain 660k, then the shareholder takes it out at CGT rates left with 1.567k. To maintain consistency between the two options, the company put the 100k from year 13 onwards on deposit. It also put the corporation tax saved because of interest paid on deposit. So it had 770k on deposit which the shareholder took, netting him 516k. Total €2.083.
The property is disposed of after 20 years for say 3m the director pay 33% on the gain 660k and pays off the loan of 300k and is left with the balance 2.040m. But again the company put the tax it saved because of the rent paid on deposit, so it had 292k in a deposit account that the director took, netting him 176k. Total €2,216.