ltd co - property and other

[arusha]

I recently set up a ltd company to buy and sell two flats as have used my CGT allowance this year. Company is new and now owns the two flats and owes the directors (me and husband) about £50k.

I then decided to do my 'other' job as a consultant rather than as a permanent employee as I can get much more money. Am currently in the middle of my first contract and am invoicing through the business. I will get about £20k.

Does that mean I can take my £20k out of the business tax free as the business owes me money. I will then only have to pay the tax when I sell the flats (on market now).

Secondly if I sell the flats then buy another property for my next project can I put off paying the tax still further. If I don't need to pay myself much (we can live off husband's salary) could I just keep buying and selling houses and contracting to speed up the growth of my capital and pay minimal tax for years. Sounds too good to be true.

[jeffrey]

I recently set up a ltd company to buy and sell two flats as have used my CGT allowance this year. Company is new and now owns the two flats...
Could I just keep buying and selling houses...?

Apart from tax aspects, about which I cannot answer, I saw that your question was whether "I" could just keep buying and selling- but it is of course the COMPANY that owns.
Also, do NOT yourself buy from (or sell to) the Company unless you comply with Companies Act requirements for dealings between Directors and their own company. Take professional advice on this.

[arusha]

You are right Jeffrey it is the company that would be buying and selling, not me.

I have an accountant but to be honest I am not sure he is good enough as my situation gets more complicated, it always seems to be me thinking up the tax efficient ways of doing things, rather than him.

[stephenp]

If you live of you husband salary you will pay no income tax or NI, however if the company makes profits of say £100k from both the property and your consultancy then you will pay 20% corporation tax, beware of just extracting money from the ltd company as this is not your money and directors loans incur interest after 9 months.

[Grange]

You really need a 10-page advice letter from a better accountant than you appear to have. I'll try to stick to a couple of paragraphs, but you may find it isn't clear enough.

First the (probably) very bad news. Your company will almost certainly pay tax at 30% (28% from next year) on its gains, as its main purpose is to hold investments. (It is a "close investment holding company" defined by s13A of Income and Corporation Taxes Act, which s13(1) ibid means the 20% tax rate is disapplied.)
Sorry.

UNLESS the company is trading properties. If it buys and sells them for short term gains, just as it would bananas or tables and chairs, then it may well be trading and the 20% rate would apply.

If you use the company for JUST contracting then the 20% rate applies. But have you thought about IR35? From what you write, it sounds as though you could easily have been on the payroll of the company for which you are contracting. If so, there is probably no saving to be made by running through a company; the IR35 provisions effectively mean that you are treated for tax purposes exactly the same as if you were an employee of the company for which you are contracting.

With the new rules on CGT that are supposed to be coming in next April (provided they come in as promised) personal CGT is CHEAPER than corporation tax on chargeable gains for companies (= 'CGT for companies'). You also have your £9k pa annual exemption which a company does not get.

If you ever try to return the money to yourself - when you retire, for instance, then you will pay the additional tax.

Provided you are not caught by IR35, you can indeed return the 50k loan to yourself tax free. Once you've paid that much back, then you cannot return more tax free. But you can leave the money in the business to roll up having been taxed at a lower rate than 40%. Minimum wage probably does not apply to you. You don't have to pay yourself a salary. But when you retire, you will have to pay (a proportion of) the additional tax when you wind up the company. Without a crystal ball it's quite hard to plan for the tax situation that far ahead.

[arusha]

Thanks for the answer. I will get a better accountant, I need one who advises me rather than just fills in my tax returns.

I think I don't fall under IR35 as it is a short term contract, for a specific task. This is a risky area though in case the inland revenue disagrees. My contract is supposedly IR35 compliant but I guess that's subjective.

I am glad to hear I can pay back my £50k tax free even from my consultancy earnings.

There is one thing that i didn't understand in your answer. You said I pay 30% for holding investments. Do you mean I pay it when I sell the specific house? So if I sold it and bought another right away with the cash released which essentially means there was no profit in that accounting year would I still have to pay tax on the proceeds of the house I sold?

I set this company up for trading, (I just had the one particular project in mind) but it is useful to know about the long term investments aspect as it did cross my mind that I may as well do my other buy to lets through it. Seems that isn't a good idea now though.

Finally although I am planning on keeping the money in the business in order to grow it. Am I right in thinking that I would be daft not to pay myself the tax free amount each year. Even if the company can't afford to give it to me, I can lend it back to the business surely and then can get it tax free whenever I want.

[Sandi]

Grange

Are you sure this is a close investment company my understanding is that it is only a close investment company if it lets property to a connected person.

Also I confirm if company owes 50k then you can take this money out of company tax free.