Parents buying commercial property - tax efficiency

[simonre7]

Firstly, we plan on getting paid professional advice if this idea has some legs.

Long and short of it is I may have the opportunity to buy half of an office building the company I am a director of currently occupies.
I am not yet a shareholder of the business, but I expect I will be in the future.

I don’t personally have the capital to buy the building and although a mortgage would be possible I am also looking to move house next year, so need to maintain my own personal buying power and I assume this would be affected?

My thoughts are my parents could stump up the cash and then reap the benefits of the rental income with no hassle from the tenant as they are signed up to a full repairing lease.

I then started thinking whether this arrangement be best through a separate limited company or as a personal investment?
Secondly, how would this work from an inheritance tax perspective with the two structures above? I am an only child when it comes to inheritance tax and their current estate would be over the threshold

It’s worth noting I’m not really interested in having the additional income from the property at the moment as it would likely push me into 60% marginal tax rate. This also means my parents need to take the rental income directly rather than through me with any arrangement.

Ant bright ideas or experiences are welcome!

[TownIdiot]

If they have sufficient pensions they can buy commercial property in a SIPP

Edited to add

Bought personally or through a ltd co income and capital growth would be subject to tax.
Inheritance tax would be due.

None of which applies if bought through a pension, other than any income they choose to take

Edited by TownIdiot on Saturday 12th October 21:16

[Panamax]

You're a director but not a shareholder. Thinking of buying the premises. Run Forrest, run.

[TownIdiot]

Panamax said:

You're a director but not a shareholder. Thinking of buying the premises. Run Forrest, run.

Depends on the strength of the company and the lease surely?

[Panamax]

TownIdiot said:

Depends on the strength of the company and the lease surely?

"Double or quits" is the problem.

Company goes down down the stter, stops paying the rent and then your property investment is dangling over a cliff edge. Ah, yes, but it's a great company. OK, so how about picking up some shares before buying the premises? If the existing shareholders don't want to let you in you're just the hired help. No, I wouldn't even think about buying the premises under those circumstances. If you really want to invest in commercial property buy something that isn't dependent on the income stream from your job.

[TownIdiot]

Panamax said:

"Double or quits" is the problem.

Company goes down down the stter, stops paying the rent and then your property investment is dangling over a cliff edge. Ah, yes, but it's a great company. OK, so how about picking up some shares before buying the premises? If the existing shareholders don't want to let you in you're just the hired help. No, I wouldn't even think about buying the premises under those circumstances. If you really want to invest in commercial property buy something that isn't dependent on the income stream from your job.

All fair points - on the last sentence if his parents buy it then it wouldn't depend on his income stream.
However I've just re-read the OP and it's only half the property so I'm out as well!

[ooid]

So essentially, your parents will be investing in the commercial property and ofcourse take the rental income. You are basically suggesting, this would be yours on inheritance. There are two questions.

1-)Investment decision: If the current lease is long and strong enough, and the area is ideal (likely to appreciate), they might consider buying, depending on how much yield they are expecting to get. The usual expectation would be over 10 year sonia swap (over 3.60% now?) + risk premium of the tenant and the building quality (depreciation). These are super basic assumptions, there can be more factors.

2-)Exit: Tax efficiency and inheritance for the future: A specialist accountant would be the best, to consider all context.

[JQ]

simonre7 said:

Firstly, we plan on getting paid professional advice if this idea has some legs.

Long and short of it is I may have the opportunity to buy half of an office building the company I am a director of currently occupies.
I am not yet a shareholder of the business, but I expect I will be in the future.

I don’t personally have the capital to buy the building and although a mortgage would be possible I am also looking to move house next year, so need to maintain my own personal buying power and I assume this would be affected?

My thoughts are my parents could stump up the cash and then reap the benefits of the rental income with no hassle from the tenant as they are signed up to a full repairing lease.

I then started thinking whether this arrangement be best through a separate limited company or as a personal investment?
Secondly, how would this work from an inheritance tax perspective with the two structures above? I am an only child when it comes to inheritance tax and their current estate would be over the threshold

It’s worth noting I’m not really interested in having the additional income from the property at the moment as it would likely push me into 60% marginal tax rate. This also means my parents need to take the rental income directly rather than through me with any arrangement.

Ant bright ideas or experiences are welcome!

When you say half an office building, do you mean 50% of the ownership of a single building, or a semi-detached building where your parents would have 100% control of their element.

Who is offering to sell the property? Why are they selling? If it is only 50%, who is retaining the other half?

Does your employer occupy the whole building on a single lease? How long's left on the lease?