Limited Company

[MrWoof]

Just over three years ago, on the advice of my accountant, my wife and I set up a limited company, each of us holding half the shares. We bought a small number of properties through this company but tax laws have now changed to our disadvantage and of course, accounting fees are much higher for a company. The portfolio has appreciated by about 40% in this time. Can we simply transfer the properties into our own names without tax liability and if so, would this be wise. The object of the business is to provide an income when we retire (hopefully early).

[Tax Accountant]

Just over three years ago, on the advice of my accountant, my wife and I set up a limited company, each of us holding half the shares. We bought a small number of properties through this company but tax laws have now changed to our disadvantage and of course, accounting fees are much higher for a company. The portfolio has appreciated by about 40% in this time. Can we simply transfer the properties into our own names without tax liability and if so, would this be wise. The object of the business is to provide an income when we retire (hopefully early).

You say that tax laws have now changed to your disadvantage.I do not agree that the laws have become any more dis-advantageous in owning properties through a company than they were before.

There are advantages as well as dis-advantages of owning properties through a company. I do not have any inclination to go into these in detail in here. It a question of 'horse for courses'. there is no standard answer to this.

If you transfer the properties to personal names. it will trigger a CGT disposal for the company based on market values. Not palatable but the company tax rates are generally only 19%; not too bad I think.

If you do not need to draw any income from the company now, you may wish to leave status quo. When you retire, you may draw dividends from the company without paying any tax provided you are a basic rate taxpayer at that time.

Ramnik

[MrWoof]

Thank you for that, I was under the impression that dividends were now taxable which, with the 19% company tax rate, meant that we would lose out.

[Tax Accountant]

Mr Wolf, sorry I am in a rush. It is complicated to explain the dividend interaction with company tax rate. basically, you cannot benefit from the lower company tax rate of 10% if you wished to take out the profits as dividends. But so long as the company has paid 19% tax, you can take out profits as dividends and not pay any further personal tax so long as you are not a higher rate taxpayer in the year in which you take out the dividends.

I hope this makes sense to you.

Ramnik

[MrWoof]

Thanks for the explanation, yes, it does make sense, it wasn't explained clearly by my accountant. As for being a higher rate taxpayer...I wish.:)

[Tax Accountant]

Mr wolf,
Just to be a bit more clearer: Your company may benefit from the lower tax rate of 10% so long as the profits are not distributed out as dividends. To the extent that profits are distributed out as dividends, the company has to pay the more normal rate of 19% on the profits.

As for the individuals receiving the dividends, you will see from the tax vouchers, which comes with the dividends, that there is a tax credit attached to the dividends received by the shareholders. So long as the individual's taxable income, including the dividend, is not chargeable to Higher Rate Tax, the individual's tax credit will be deemed to satisfy his'her basic rate tax liability. To the extent the dividend enters higher rate bracket, a further tax is payable which equals to one-quarter of the actual net dividend.

Ramnik

[johnj]

why are your costs greater for being a company
I would guess that you are well below the audit threshold, so you just need a set of accounts which should cost no more than if you were not a company.
Take better advice, elsewhere if necessary.

[Tax Accountant]

The accountants costa for dealing with a company's affairs is of course bound to be higher than preparing simple rent accounts for a person or for a couple.

Even if you are exempted from an AUDIT, you are still required to prepare accounts which complies with the disclosure requirements of the Companies Acts.

Having said this, the accountancy costs should not be the deciding factor in determining whether to own properties through a company or own them personally.

CGT exemptions and allowances are generally better for individuals and consequently CGT bills are much lower as compared to disposals by a company.

Ramnik

[johnj]

If you take the property out there is the prospect of tax within the company on the growth in value as it is making a disposal, however that may be structured.
BUT
Unless you BUY the property you will face a tax charge on the full value that you receive and it will matter whether you receive a capital distribution on winding the company up, as a dividend, or as a 'bonus' liable to income tax and national insurance.

take advice