Property Trading as sole trader/ltd company

by **NavSG** on Sun Nov 13, 2011 9:49 pm

I am a newbie to all tax related matters and would like some advice on the following:

Is it perfectly acceptable to trade in property (intention is buy, renovate and then sell) as sole trader but carry out the renovation via my ltd company. Ltd company will be invoicing for renovation works, the idea is that as a sole trader the property purchase, renovation and sale will break even so no further tax issues here. Any profit realised will be through the ltd company where the corporation tax will be less than income tax and NIC. Main shareholder will be my wife so as to take advantage of tax free allowance and dividends free of NIC.

Is the above acceptable and/or worth the hassle.

by **mullet** on Sun Nov 13, 2011 10:13 pm

Are you saying that the company will effectively overcharge for the renovation work, in order to achieve the result of you making neither profit nor loss as a sole trader?

by **NavSG** on Mon Nov 14, 2011 10:33 am

The invoice from the ltd company would equal the difference between the purchase and sale price.

by **NavSG** on Mon Nov 14, 2011 10:33 am

The invoice from the ltd company would equal the difference between the purchase and sale price.

by **Incredulum** on Mon Nov 14, 2011 11:34 am

i.e. the company is overcharging for the work done. (Or the individual is a foolish investor.)

If the company overcharges, then the payment by you to the company will not be wholly and exclusively for the purposes of your trade of property trader, so your payments will not be tax deductible, so you will have a tax charge and the company will be taxed on the same profits.

As for making your wife sole shareholder, you are likely to be playing with the fire that is the settlements legislation which is complicated and I do not intend to touch on, but somebody else might.

by **NavSG** on Mon Nov 14, 2011 1:52 pm

Apologies for being such a numpty. Can i just carry out property trading via a ltd company. How would the finances work, would the company need to take out mortgage to purchase the property or could i take out a personal mortgage ? Plan is to do at least 3/4 properties a year with £20k-£30k profit on each one.

by **tom 7000** on Tue Nov 15, 2011 11:50 am

Yes the company buys the properties, it renovates it and it sells it. Difficulty you will have is the bank wll increease its charges...

You have to do the math to see if its worth it

by **NavSG** on Tue Nov 15, 2011 5:14 pm

tom 7000 wrote:Yes the company buys the properties, it renovates it and it sells it. Difficulty you will have is the bank wll increease its charges...

You have to do the math to see if its worth it

I understand the above, however any company i may start will not have any funds to buy the properties. I can only raise the funds by taking out a mortgage personally. Could a solution be to purchase the property via personal mortgage and then transfer it to my ltd company via a deed of trust so that any profit or gain is taxed via the company. Is this possible ?

by **Incredulum** on Tue Nov 15, 2011 6:09 pm

If you have a mortgage on the property then you cannot transfer it to a company.

If you transfer it to a company then SDLT will be due.

Therefore, get the company to borrow the money, but you give a personal guarantee. (Or indeed take out a mortgage on your own home and lend on the cash to the company.)

by **NavSG** on Tue Nov 15, 2011 7:17 pm

Could the deed of trust between property owner(mortgaged) and company that the company (owned by the property owner) will benefit from all aspects of the property, in return for the company taking full responsibility for the property.

Allowing the profits and gains associated with the property from that point onwards to be taxed via the company, not the property owner.