Ltd Co BTL for family

[JZZ30]

My daughter is looking to rent. I’ve been to see a couple of places with her. Either dumps or really expensive.

I’ve been mulling over the idea of buying a place through my Ltd co and renting to her, but don’t know if I need a reality check!

Company has the cash to buy a place outright.

I’m thinking if I can make a 7% return, that’s near lower end of market average and better than I’m currently doing with the cash.

Daughter gets to decorate to wishes, I get peace of mind that things will be fixed as/when, control over price hikes / termination.
Other than me being on the hook for the rent if not paid and other caveats about mixing personal/business , what holes am I not seeing?

Is it even a possibility? My company currently has no links to BTL.

I will of course chat it over with my accountant at some point.

[Eric Mc]

How is the rental company going to be extracted from teh company to the individuals?

What thoughts have you given to Capital Gains Tax?

[JZZ30]

Eric Mc said:

How is the rental company going to be extracted from teh company to the individuals?

No plans to extract. I'm thinking this would just be an asset of the current company?

Eric Mc said:

What thoughts have you given to Capital Gains Tax?

If the company sells it and makes a profit then even better.

[TownIdiot]

Main issue will be if she doesn't or can't pay the rent.
Or you decide you want to sell and she doesn't want to move.

[BoRED S2upid]

Put daughter into the structure as a director then when you die she gets the house and your fortune.

Just waiting for Eric to pop back and to tell me that’s illegal and tax avoidance

[TownIdiot]

BoRED S2upid said:

Put daughter into the structure as a director then when you die she gets the house and your fortune.

Just waiting for Eric to pop back and to tell me that’s illegal and tax avoidance

Apart from the fact being a director won't make any difference and a BTL company is subject to IHT that will work fine.

[Sheepshanks]

TownIdiot said:

Apart from the fact being a director won't make any difference and a BTL company is subject to IHT that will work fine.

Transfer the shares of the BTL company to the kids when the time is right.

Mate of mine has done this - reckons he's done a lot of checking and it's all good, but he is someone who would look for ways of doing things, not reasons why it might be a problem.

He's even used money from another company to buy the property - think he pays corp tax on that because the purchases aren't allowable for corp tax relief, which I was surprised by, as I thought they'd simply be an asset of the business.

If it's a multi-generational family company apparently it can even do things like pay grandchildren's school fees.

[TownIdiot]

Sheepshanks said:

Transfer the shares of the BTL company to the kids when the time is right.

Mate of mine has done this - reckons he's done a lot of checking and it's all good, but he is someone who would look for ways of doing things, not reasons why it might be a problem.

He's even used money from another company to buy the property - think he pays corp tax on that because the purchases aren't allowable for corp tax relief, which I was surprised by, as I thought they'd simply be an asset of the business.

If it's a multi-generational family company apparently it can even do things like pay grandchildren's school fees.

Well yes but you can do that with the properties if that's the route you want to take


The company lending the cash wouldn't get tax relief for giving the loan, but the company receiving it wouldn't get tax relief either.

[JZZ30]

Would I need to set it up as a separate company or can I simply add it to my current accounts with entries for rental income and any expenses and pay relevant corporation tax?

[TownIdiot]

JZZ30 said:

Would I need to set it up as a separate company or can I simply add it to my current accounts with entries for rental income and any expenses and pay relevant corporation tax?

There is no reason why you can't have it in the same company.
I know it's standard advice but you really need to discuss with an accountant to go through the ramification of however you choose to buy it.

[Panamax]

Sounds nuts to me. Why is this company sitting on surplus cash? It could either be reinvested in the business or paid out as dividend. "Ah, but what about the income tax?" Well, the tax might well be lower this year than next and you've probably got to pay it sooner or later.

She wants to rent. OP proposes buying a house. If you want tax efficiency she should be buying the house and benefitting from CGT exemption on main residence.

Dividend out, tax free gift to daughter, she buys house paying mortgage instead of rent (mortgage replaces the income tax paid) - job's a good 'un.

[MustangGT]

TownIdiot said:

JZZ30 said:

Would I need to set it up as a separate company or can I simply add it to my current accounts with entries for rental income and any expenses and pay relevant corporation tax?

There is no reason why you can't have it in the same company.
I know it's standard advice but you really need to discuss with an accountant to go through the ramification of however you choose to buy it.

Agree with the advice to speak to an accountant.

Also BTL business requires the correct SIC codes registration:

68100 – BUYING AND SELLING OF OWN REAL ESTATE.
68209 – OTHER LETTING AND OPERATING OF OWN OR LEASED REAL ESTATE.
68320 – MANAGEMENT OF REAL ESTATE.
68201 – RENTING AND OPERATING OF HOUSING ASSOCIATION REAL ESTATE.

One or more of the above would be required. Probably the first two for the OP, perhaps the third as well.

[JZZ30]

Panamax said:

Sounds nuts to me. Why is this company sitting on surplus cash? It could either be reinvested in the business or paid out as dividend.

Probably a fair question that would need another thread to be answered fully, but the TL:DR version - Covid put the absolute fear in me about how quickly it can all turn to st when my industry was practically shut down (as were lots). Probably affected my mental health more than I'd care to admit. Afterwards, I wanted to build some cash reserves. I take what I need from the company to be comfortable and reinvest enough to keep it all going. Here we are a few years down the line and I've got excess cash that I need to now start looking at. Like I said in the OP, mulling the idea over. I'll need to look at all options.

Panamax said:

Dividend out, tax free gift to daughter, she buys house paying mortgage instead of rent (mortgage replaces the income tax paid) - job's a good 'un.

Not sure what you mean by 'mortgage replaces the income tax paid'?

And just to add some further context, I'm in Scotland looking at houses outwith the major centres. I'm not sitting on millions!

[TownIdiot]

If you have a trading business you definitely need to check with your accountant as to what affect a BTL will have on that.

My previous answer presumed the other business was a BTL business.

[JZZ30]

TownIdiot said:

you definitely need to check with your accountant

Noted. Just trying to determine if it's an idea even worth bringing up next time we meet.

[Eric Mc]

TownIdiot said:

If you have a trading business you definitely need to check with your accountant as to what affect a BTL will have on that.

My previous answer presumed the other business was a BTL business.

Yes - different tax rules for limited companies that generate their income mainly through investmnents rather than trading.

A company that generates its income from rents is an investment income.

The Capital Gains Tax treatment on sales of assets in invesment companies or the sale of the company itself are quite complex.

HMRC is not stupid and has most of these imagined "wheezes" caught by various tax regulations.

[Mont Blanc]

Panamax said:

Sounds nuts to me. Why is this company sitting on surplus cash? It could either be reinvested in the business or paid out as dividend. "Ah, but what about the income tax?" Well, the tax might well be lower this year than next and you've probably got to pay it sooner or later.

She wants to rent. OP proposes buying a house. If you want tax efficiency she should be buying the house and benefitting from CGT exemption on main residence.

Dividend out, tax free gift to daughter, she buys house paying mortgage instead of rent (mortgage replaces the income tax paid) - job's a good 'un.

My experience is that people often save up cash reserves within their Ltd Co in the anticipation of finding something to buy/invest in, often a property of some kind. Sometimes investing all the surplus cash to try to grow the existing business isn't the right direction, nor is paying it out to yourself.

My Ltd Co ended up with over £1.4m sitting there, built up over a period of years, with my accountant telling me it was mental to have '£1m sat rotting in the bank' etc etc. I then went out and bought a commercial property worth £1.35m, and then enjoyed rent from it which has risen over the time I have owned it from £130k a year to £230k+ a year, free from any finance arrangements or repayments.

I know others who have done similar stuff with their cash reserves.

[Panamax]

Mont Blanc said:

my accountant telling me it was mental to have '£1m sat rotting in the bank' etc etc. I then went out and bought a commercial property worth £1.35m, and then enjoyed rent from it which has risen over the time I have owned it from £130k a year to £230k+ a year, free from any finance arrangements or repayments.

Fair enough, so the company gets even more cash building up in it - which you pay out as, presumably, dividend, so why not just dividend out the money in the first place? Sure, there's some tax timing involved.

Do you live in a >£££millions house? The tax advantage of "investing" in your own main residence, free from CGT is massive compared to surplus property in the company which will eventually suffer CGT. But if you're already very wealthy it wouldn't make much difference either way.

Obviously if and when you sell the company the new owner will get whatever is in it. When I was buying companies we often ended up having to clear out "the former chairman's hobbies" shortly after acquisition. I remember at one point buying a company based in Aberdeen that worked around oil exploration and we had to sell off a hotel the chairman had rather liked...

[isleofthorns]

Mont Blanc said:

Panamax said:

Sounds nuts to me. Why is this company sitting on surplus cash? It could either be reinvested in the business or paid out as dividend. "Ah, but what about the income tax?" Well, the tax might well be lower this year than next and you've probably got to pay it sooner or later.

She wants to rent. OP proposes buying a house. If you want tax efficiency she should be buying the house and benefitting from CGT exemption on main residence.

Dividend out, tax free gift to daughter, she buys house paying mortgage instead of rent (mortgage replaces the income tax paid) - job's a good 'un.

My experience is that people often save up cash reserves within their Ltd Co in the anticipation of finding something to buy/invest in, often a property of some kind. Sometimes investing all the surplus cash to try to grow the existing business isn't the right direction, nor is paying it out to yourself.

My Ltd Co ended up with over £1.4m sitting there, built up over a period of years, with my accountant telling me it was mental to have '£1m sat rotting in the bank' etc etc. I then went out and bought a commercial property worth £1.35m, and then enjoyed rent from it which has risen over the time I have owned it from £130k a year to £230k+ a year, free from any finance arrangements or repayments.

I know others who have done similar stuff with their cash reserves.

the other consideration with this is that your company may be considered an investment, rather than a trading company, and the limitations to claim BRP as a result - although, after today, this is worth less anyway!!