Sell my small garden to my limited company

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    Sell my small garden to my limited company

    I have a PPR property with a side garden that is suitable to build a house on. Can i set up a limited company and sell my garden to that company, at a commerial rate, to allow the limited company to build a rental property? The plot is less than 0.5 acre so assume I will avoid CGT on the sale? Can I then create a directors loan for the value of the land sale (and the build cost) and pay myself back through the limited company once the property has been built and is generating income? I anticipate renting the new build for several years and then at some stage selling it through the limited company and the taxable profit would be the sale price minus the land cost, build cost and expenses? Hope this makes sense and thanks for any advice!

    #2
    Broadly you could do what you propose.

    When your limited company sells the property, the proceeds will be income, not a capital gain.

    You would have to consider how you would extract your money from the company without being taxed on it (after the business has paid its own tax previously),

    I am not entirely clear what benefit the limited company delivers in this model.

    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Many thanks for the response, couple of further observations?

      You would have to consider how you would extract your money from the company without being taxed on it (after the business has paid its own tax previously),

      Assuming that some time in the future the limited company would have several hundred thousand sitting in it, presuming I make my partner and couple of kids directors we extract through dividends to up to the higher level (37.5k) and director pension payments? I'm guessing i could extract over a period of 2-3 years once the initial corporation tax on profit has been paid?

      I am not entirely clear what benefit the limited company delivers in this model.
      Wouldn't the alternative be to fund and build myself and then have to pay CGT on sale value minus build costs (presumably land couldn't be added to my costs as I already own it)? guessing that may be 100k off recorded costs, would this still be best way to mitigate taxes in all their various forms..

      Appreciate this may sound rather convoluted but many thanks for any further thoughts.

      Comment


        #4
        This website has some relevant comments :

        https://www.thefriendlyaccountants.c...g-your-garden/

        You should sell the old main residence ( no capital gains tax ) and move into the new house

        Comment


          #5
          Set up a limited company, no problem. Where does the company get the money from to buy your land ? You should really speak to a good accountant as director loans are taxable after time, they will tell you very quickly what is possible.

          Comment


            #6
            swampydrill,

            Thanks for the response.
            I was hoping that a directors loan would cover the cost of the land purchase as I would be director of the company? I have an accountant but he doesnt specialise in property so guess I am trying to find someone in a comparable situation.
            thanks!

            Comment


              #7
              Originally posted by Gordon999 View Post
              This website has some relevant comments :

              https://www.thefriendlyaccountants.c...g-your-garden/

              You should sell the old main residence ( no capital gains tax ) and move into the new house
              Thanks for the response.
              Unfortunately the new property would be smaller than the existing so not really an option, but out of interest is there a minimum period of time you would need to live in new property before you could sell as your PPR legally? Many thanks.

              Comment


                #8
                Originally posted by yanyan View Post
                is there a minimum period of time you would need to live in new property before you could sell as your PPR legally
                It just has to really be your PPR, so for most people with one home, it's a no brainer and starts the day they move in.

                Assuming that some time in the future the limited company would have several hundred thousand sitting in it, presuming I make my partner and couple of kids directors we extract through dividends to up to the higher level (37.5k) and director pension payments? I'm guessing i could extract over a period of 2-3 years once the initial corporation tax on profit has been paid?
                The issue is that you need to track all the money flows over the business lifetime.

                The company is going to be paying tax at 19%, and most of what comes out is going to be taxed as your income.

                While the business might have an asset worth several hundred of thousands of pounds in it, it's not a liquid asset and you can't take it out without selling it, which again is a lot of tax (and your shares in the company are a capital gain).

                I'm sure you've thought this through, but I don't see the plusses of the company (other than being able to make your partner and children directors - which you could replicate other ways).
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  You should be able to sell the land to a company at full open market value, achieve CGT treatment (even if planning is in place) and claim principal private residence relief so should be no CGT unless there's been periods of non occupation. HMRC are unlikely to challenge this arrangement but you might want to get a pre transaction clearance. The company would need to consider its SDLT liability on the transfer of the land. The value of the land transferred to the company plus any SDLT and build costs you contribute should form a directors loan account in your favour. The company will be liable to corporation tax on a future disposal broadly applying the proceeds less cost approach you describe. You would then have to consider how to extract the proceeds from the company; you might get lucky and be able to just sell the company although that is rare. Gradual extraction of proceeds, pension contributions or simply using the comapny as an investment vehicle in retirement might suit. Good luck!

                  Comment


                    #10
                    interesting idea! was thinking about something similar, but the first problem is the planing permission, have you managed to obtain it?

                    without this the project goes now where....

                    as for the LTD it may make sense as building will be cheaper due to potential savings on VAT that is 20% off the cost!
                    + if you lend money to your company you can claim interest, therefore reduce taxes.

                    Comment

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