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  • Tax

    Tax on BTS property held in Ltd Co name

    Hi,

    I have a tax question regarding properties held in a Limited Company.

    I appreciate any information on here is based on personal experience. I would like to hear others’ points of view before speaking to my accountant.

    The question is about tax implications of owning a property in a Ltd Co where the value has increased during the ownership and the property eventually sold  (assuming the Ltd Co is set up as an investment property Company so designed to buy hold(let) for the long term.

    Scenarios;

    1. Buy - renovate - let - sell    =   viewed by HMRC as investment therefore  “profit” on increase in property value when sold taxed as Corporation Tax.  I know there is an indexation allowance for Ltd Co's to work out the actual chargeable gain.

    However, what if ..

           2. Buy - renovate - sell            =   viewed by HMRC as trading therefore “profit” on increase in property value taxed as ???

    Is this also Corporation Tax?

    The other question is what is the implication of an investment LTD property Company buying, refurbing and selling properties, ie trading?

    I know an accountant advised me once not to mix investment and trading in the same Ltd Company but can’t remember the reason or implication for that.   Maybe to do with lenders not liking the risk of investment and trading in the same Ltd Co.The trading activities could jeopardise the investment part of the Company?

    The reason I ask is because I have an investment Ltd Co set up for the properties we let and am considering BTS, as I have funds in the Ltd Co to buy and sell, but have not done so yet.

    I hope this question is of interest to those intending to set up Ltd Companies to buy properties as I think the correct Ltd Co structure is important from the outset.

    To quote Stephen Covey - “ Begin with the end in mind”.

    Any comments appreciated.

    Thanks

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    Yes, profits arising in the ltd are taxed at the corporate tax rate.

    I am also led to believe that separating trading from investment is a sensible structure.  

    I think the reality of that can depend on the size and scope of the overall business and what proportion is trading / investment, but the principle holds.

    It is more to do with demonstrating the difference between trading and investment for HMRC purposes, but I suppose some lenders would prefer their interests to be ring fenced too

    In HMRC terms, the differences that you would most likely encounter are to do with inheritance tax and entrepreneuers' relief being treated differently

    Moving money from your existing company to a new one is easy enough to do

    Seek proper advice of course.

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    Thanks pipllman for your reply!

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