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  • Tax

    First Ltd co purchase - how to structure

    Hello,

    Looking to purchase my first property via a Ltd Co (SPV). I currently run a contracting Ltd Co.

    I know I can provide an inter-company loan to the SPV but does anyone know what the benefit of having a holding company above the contracting co and SPV is?

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    More accountants fees no doubt!

    Worth asking if such a created group can claim group loss relef  (that is of course if losses ocur)



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    If the contracting company loans money to the property company and then later gets into difficulty, gets sued, etc. then the loan is repayable on demand. If the property company holds the shares in the contracting company then profits from the contracting company can be distributed to the property company. This is not a loan and so the money is not repayable as long as the distribution was legal. Oh, and no tax payable on the distribution from contracting company.

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    So the profits of the contracting co. can be given to the property co as a dividend instead of a director's loan?

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    "If the contracting company loans money to the property company and then later gets into difficulty, gets sued, etc. then the loan is repayable on demand."

    This is not correct.  If the loan from contracting co is stated to be, for example, a 25 year loan, then the insolvency (for example) of the contracting co will not affect that.  This is why people are still sitting pretty on Northern Rock and Mortgage Express mortgages.

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    Yes, if the property company owns the shares in the contracting company. You can then take dividends from the property company as required/available. Dividends received by a company are not subject to corporation tax.

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    Hi

    Do dividends not have to be distributed in line with the % of shares held in the limited company? For example, if the SPV needs £50k dividend for the deposit, but has a 50/50 share in the Contracting lomited company with the Director, then a £50k dividend will need to be paid to the director as well?

    How would that work if the Contracting limited company is used to draw a dividend to support the Director's living expenses? Would you have to calculate the correct % shareholding of the limited company from the outset?

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    Just to say ... there is a way around the even distribution rule, by declaring different classes of shares in your Articles if Association ("ABC" shares), allows flexibility for directors to divi up to taste.

    (That's my understanding at least)

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    You should distribute dividend in accordance with shares held. Why could you not have the property company own 100% of the contracting company and you own 100% of the property company? Then profits from the contracting company flow through the property company to the ultimate shareholder. If the shareholders of the property company are not the same as current shareholders of contracting company then that can be a problem. Ideally you would discuss this with your tax advisor so that the advice can be tailored to your specific needs and circumstances.

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    I have this exact same setup myself.

    Contracting Co has the following share structure-

    50 Ordinary shares: Mr K

    50 Ordinary shares: Mrs K

    100 Special shares: Owned by Property Co


    If I need funds in Property Co from Contracting Co, I just declare a dividend payable on the special shares only. Pretty much all retained earnings over the past couple of years have gone to Property Co via this way. As was stated above, its much better to do it this way rather than a loan.

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    I'm assuming the dividends given to the property co are taxed at normal rates?

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