Tax efficient structure for residentail property purchase

[jwm1]

Dear all

I am looking for some advice on the best way to structure a purchase of a property for tax purposes.

The property will cost £270k, however the purchase price will be fnuded between personal funds and funds held within a company of which I am the sole shareholder and director. Split is likely to be Company funds £200k, personal funds £70k. I will live in the property and also use it as an office.

As I can see it there are 3 options

1 Dividend the funds to myself - this isnÂ’t very tax efficient as I will obviously have to pay 40% tax on the dividend.

2 Company loans me the money at a commercial rate of interest – the co is small for tax legislation so the interest received would be taxed at 19%. At a rate of say 6% this would be income of £12,000 and a tax bill of £2,280 within the company. Further tax may or may not be payable depending on my tax position when I extract the money via dividend.

3 Company allows me to live in the property rent free. This would result in me being taxable on the benefit of an equivalent commercial rent - which would be around £1,100 per month. Assuming I am a higher rate tax payer then my tax charge would be £5,280.

I would appreciate any views on whether my analysis is correct and also whether there is a better way to structure the purchase.

Thanks in advance

Regards
Jamie

[Simon Sweetman]

It is important from the CGT angle that the property is in your name, not the company's. So the company has either to lend you the money or you have to extract it. Strictly it is illegal under the Companies Act for you to borrow from the company, though nobody seems to worry about this.

If that loan was interest free there would also be a substantial charge on the company under S.419 which will take tax from the company at 25% (repayable when the loan is repaid). The loan at a commercial rate looks like the best idea.