Brendan Burgess
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Key Post Why you should never use a limited company to invest in residential property
- Thread starter Brendan Burgess
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torblednam
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I'll actually explain a situation where it makes sense ...
Where an individual had, say, bought expensive property substantially with borrowed money (eg. Pre-crash in the 2000's in Ireland) and subsequently their personal financial situation became constrained, such that they would have had to draw substantially more income from their trading company (subject to 52%+ taxation) in order to fund a property investment that was no longer washing its own face.
In some such cases, it made sense, in the round and at a particular point in time, to transfer the property into their company at its reduced market value:
- A CGT loss was booked for the individual (albeit ringfenced between the connected parties)
- Any equity in the property was a tax-free form of cash extraction for the individual
- The company assumed the property and the associated debt (the whole arrangement could only fly with the lender's acquiescence of course, but a decade ago having recourse to a healthy trading company with strong cash flow, which you can threaten to have wound up, may have been preferable to standing in line to chase Joe Bloggs for your money).
To describe broadly the financial sense of it:
Let's say that the shortfall (in terms of repayments vs rent, or any tax cost) for the individual, is 100k.
To fund that, he'll need to pull over 200k out of his company - more than half of which goes straight to taxes, and the balance to the bank.
By transferring into a wholly-owned, cash flow generative company, the cash flow cost in the round, reduces dramatically as the debt is being paid out of partly pre- and post- CT taxed income, as opposed to entirely out of post-IT taxed income. So there's an extra 75k or so to put into an exec pension (or whatever) every year.
Ten years ago, there was also section 604A, which meant that there was a 7-year CGT holiday for the company, which greatly mitigates one of Brendan's big issues, the double charge to CGT.
Granted, it may not be a forever solution, but looked at over say a ten-year horizon, around 2011 - 2014, it had clear merit, albeit in a very specific set of circumstances (which I have explained, rather than vaguely alluding to).
Where an individual had, say, bought expensive property substantially with borrowed money (eg. Pre-crash in the 2000's in Ireland) and subsequently their personal financial situation became constrained, such that they would have had to draw substantially more income from their trading company (subject to 52%+ taxation) in order to fund a property investment that was no longer washing its own face.
In some such cases, it made sense, in the round and at a particular point in time, to transfer the property into their company at its reduced market value:
- A CGT loss was booked for the individual (albeit ringfenced between the connected parties)
- Any equity in the property was a tax-free form of cash extraction for the individual
- The company assumed the property and the associated debt (the whole arrangement could only fly with the lender's acquiescence of course, but a decade ago having recourse to a healthy trading company with strong cash flow, which you can threaten to have wound up, may have been preferable to standing in line to chase Joe Bloggs for your money).
To describe broadly the financial sense of it:
Let's say that the shortfall (in terms of repayments vs rent, or any tax cost) for the individual, is 100k.
To fund that, he'll need to pull over 200k out of his company - more than half of which goes straight to taxes, and the balance to the bank.
By transferring into a wholly-owned, cash flow generative company, the cash flow cost in the round, reduces dramatically as the debt is being paid out of partly pre- and post- CT taxed income, as opposed to entirely out of post-IT taxed income. So there's an extra 75k or so to put into an exec pension (or whatever) every year.
Ten years ago, there was also section 604A, which meant that there was a 7-year CGT holiday for the company, which greatly mitigates one of Brendan's big issues, the double charge to CGT.
Granted, it may not be a forever solution, but looked at over say a ten-year horizon, around 2011 - 2014, it had clear merit, albeit in a very specific set of circumstances (which I have explained, rather than vaguely alluding to).
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presidenttttt
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Don't have the answer but not sure I like the closed position this thread suggests. If there are entire corporations owning chunks of irish property and property globally there must be some pretty strong logic as portfolio size gets beyond a handful?
The ability for company to be wound up and a lower rate of tax/entrepreneurial reliefs have been disregarded as not an option/not allowed, but in my limited knowledge it is a widely used mechanism in Ireland and there are plenty doing so but may not want to shout about it on a forum for fear of spotlights that warrant revenue to revise interpretations ?
The ability for company to be wound up and a lower rate of tax/entrepreneurial reliefs have been disregarded as not an option/not allowed, but in my limited knowledge it is a widely used mechanism in Ireland and there are plenty doing so but may not want to shout about it on a forum for fear of spotlights that warrant revenue to revise interpretations ?
Brendan Burgess
Founder
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Brendan Burgess
Founder
- Messages
- 52,185
I do not follow your example, but this thread is not about that scenario.
It is about an ordinary individual who wants to invest in property and thinks it might be a good idea to do it through a company.
To me you've explained a very tangled web that is so convoluted, time constrained, requiring banks to go along with it that if anyone did manage to do that they must have done it by accident. You're also looking back, and putting a scenario with the benefit of hindsight. Of something that might have been possible.
T McGibney
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Ten years ago there was no 7 year exemption. It was a 4 year exemption, until that was changed in Finance Act 2017.
There was also a lot of pessimism in 2014 that property prices would rebound within 4 years.
In that atmosphere, no bank would have agreed to a mortgage being repurposed to facilitate a company linked to the original investor taking over it and the property.
I had a look at the conditions for the relief on Revenue's website. At least at first glance it seems pretty clear cut, what am I missing?
"The relief does not apply to disposals of:
- shares (other than shares that qualify for relief under this section), securities or other assets held as investments"
Revised Entrepreneur Relief
A description as to what the Revised Entrepreneur Relief is
www.revenue.ie
T McGibney
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Nothing.
torblednam
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Agreed, I was replying to a series of posts that have since been deleted!
Brendan Burgess
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Folks
Could all please read the first post in this thread. And here it is again.
This post is about an Irish individual investor who wants to buy residential investment property in Ireland and thinks that they might do it through a company.
This does not cover:
It's not for existing companies with cash or pension funds or property development.
So posts which suggest that someone who has a successful company with €500k in cash might benefit from buying an investment property through their company will have that post deleted. Likewise responses to those posts will be deleted.
It is a Key Post so it will be actively edited to remove off topic and distracting side issues so that people who want to understand this particular issue won't have to wade through lots of off-topic distractions.
Please don't waste my time sending me messages asking me why your post was deleted.
Brendan
Could all please read the first post in this thread. And here it is again.
This post is about an Irish individual investor who wants to buy residential investment property in Ireland and thinks that they might do it through a company.
This does not cover:
- Property development
- A business operating through a company which wants to buy its own premises
- An existing company which has built up a big cash pile and wants to buy a property
- Buying a property through a pension fund
- Buying overseas property
It's not for existing companies with cash or pension funds or property development.
So posts which suggest that someone who has a successful company with €500k in cash might benefit from buying an investment property through their company will have that post deleted. Likewise responses to those posts will be deleted.
It is a Key Post so it will be actively edited to remove off topic and distracting side issues so that people who want to understand this particular issue won't have to wade through lots of off-topic distractions.
Please don't waste my time sending me messages asking me why your post was deleted.
Brendan