Buying your property from the company
The simplest option but may mean you will need to take out a loan leaving you to meet the repayments. It will also mean that cash goes into the company which may not be your objective. There will be Stamp Duty Land Tax payable too.
Why paying less than the market value may not help
As you’re paying yourself for the property you could pay less than your property is actually worth. But of course the tax man doesn’t like this! The difference between what the property is worth, and how much you paid will be taxed as if it were a dividend, and you’ll still have to pay Stamp Duty Land Tax.
Why not take a loan from your business?
If you agree to pay your company the amount the property is worth, but just pay them later, your company will incur tax equal to 25% of the debt if it is not repaid within 9 months of the financial year end. You will also pay tax and national insurance on national interest if this is an interest free loan. As you repay the loan your company can reclaim the 25% tax back each year so this is not a bad solution. There will still be Stamp Duty Land Tax to pay.
Transfer property as an in specie dividend
If you are looking for a quick solution and you have adequate net assets, you can transfer the property to yourself as an ‘in specie’ dividend (simply meaning a dividend in assets other than cash). From the tax man’s point of view this is a distribution (dividend) like any other and no PAYE or NI will be payable. Income tax is due on the dividend, which is likely to be around 25% and there will still be capital gains tax due on any difference between the book value and market value. However, Stamp Duty Land Tax is avoided.
What about VAT?
If the company has ‘opted to tax’ on the property then VAT will be payable in addition to the market value of the property. Don’t worry though, you can register for VAT and reclaim this. Whether this is a good idea or not will depend on your circumstances.
This is a significant transaction and not an easy one to deal with so do consult a tax professional that can take you through these options and find the best solution for your circumstances.
Contact BusinessHeads on 01273882200.
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