Best way for firm to move

NJ writes: I run our small family trading company and I am considering buying a new property as we have outgrown our premises. I am trying to decide between buying the property personally and letting it to the company, or an outright purchase by the company. If I were to buy the property individually then the necessary funds would need to come from the company by way of dividend, which would have tax implications. Are there any other options we should investigate?

Answer

The big difference between buying the property through the company rather than personally is that the company´s funds are used and there are no further income-tax implications. As you mentioned, if the funds are extracted by the shareholders then a further income-tax liability is due if the shareholders are higher-rate taxpayers. There is also the future capital-gains-tax position to consider if the property is sold. If it is held by the company, any gain would be taxable on the company and then the extraction of the net proceeds to the shareholders would incur a further tax charge. By holding the property personally, the chargeable gain on the company is eliminated. Another reason in favour of owning the property personally is the possibility that all the shareholders of the company do not wish to invest in it. In this situation the funds could be distributed and those that wanted to proceed could do so as individuals. You could also explore setting up a self-administered pension scheme for the company. This scheme could then buy the property, using funds that have been paid by the company to the scheme. Any increase in the value of the property would be tax-free inside the pension scheme and the rents charged by the pension scheme would accumulate tax-free in the pension scheme.