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BUYING PROPERTY THROUGH A TRADING LIMITED COMPANY

Can a limited company that has a retail trade, buy a property for investment purposes and rent it out?
The directors want to take a loan through the company to purchase a property to live in, but I have told them the tax implications of a large overdrawn bank account would be prohibitive. They now want to know if the company can buy the property and rent it to them, with the rent covering the loan repayments.

Comments

  • GingeraccountsGingeraccounts Registered Posts: 8
    If the directors pay a reasonable rent for the property, my understanding is that there will be no BIK, but there would then be a corporation tax liability on the rental profit.
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    What are the directors trying to achieve?
    if the company doesn't have the cash to buy a property outright I fail to see any benefit of doing this. The directors still have to repay the loan indirectly out of their income.The company can't claim PPR on any future sale and any ER claim on share disposal could be jeopardised.
    I am probably missing something here. Sorry it's late!
    mrme89
  • GingeraccountsGingeraccounts Registered Posts: 8
    The only reason for exploring this option is their personal income won't get them the mortgage they require whereas the company could afford it & can easily borrow additional funds. I agree that in every other respect the disadvantages outweigh the advantages. I just wasn't sure if a company could buy a property if it's trade was completely unrelated.
  • BertieBertie West Midlands Registered Posts: 376
    edited February 2017
    So you've got unfavourable gearing, massive BIK on the Directors, Corporation Tax on the rent, and no PPR. Don't think that will catch on. I would say, or suggest, - a buy to let interest mortgage[in Directors names, not Ltd], but with changes coming soon.........

    To me, personal opinion, unless the property is an investment/property development, it is more hassle than it is worth - dealing with rent, housing benefit claims, yak! More chance of a return from a race horse. Chattel, now there is a thought....
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