Thinking of taking property out of a company?

  • by Carole Jordan
  • 30 Mar, 2015
Money extracted from a property
Sometimes, although there were good reasons to have a property in the company at the outset, later this can look like a mistake. Usually this occurs when you want to sell the property separately from your business.  Tax will be unavoidable, so here’s a few tips to guide you through your options.

Ways of taking property out of a company

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.

All details above were correct at the time of publishing - for more up to date information please get in touch .


You might also be interested in...

If you enjoyed the blog, why not leave us a comment, or share it with a friend...

Free advice delivered to your inbox

Browse our other blog posts...

Our latest blog

by Carole Jordan 12 Oct, 2017

This is the first in our series of blogs designed to help you better understand your business accounts. We’re kicking things off with the profit & loss report!

by Carole Jordan 09 Oct, 2017

Taking on your first employee can be an exciting time but there are some responsibilities you need to be aware of. One of them is compulsory pensions these are your auto-enrolment responsibilities. Find out what this means below.

by Carole Jordan 02 Oct, 2017

This is the second most popular question from business owners. This sounds like a simple question but the answer is complex and involves many aspects to consider. The answers will depend on the make of the car, the tax position of the owner, their business and the method of ownership.

by Carole Jordan 25 Sep, 2017

Dealing with overseas customers and VAT rules can be a bit complicated for some businesses, particularly those in retail where you may not have proof that goods are leaving the UK.
Read below to find out more about the options available to your business.

by Carole Jordan 18 Sep, 2017

If you receive rental income from a furnished residential letting then you’ll be aware of a “Wear and Tear” allowance, eligible for use against your properties. This allowance recently saw a change to its terms, read below for more details.

More posts
Share by: