This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Investing in a Hotel with £400k capital

gatkinson
Posts:33
Joined:Wed Aug 06, 2008 3:37 pm

Postby gatkinson » Wed May 10, 2006 4:22 am

Buying a hotel for £800k. £400k from owners (released from house purchase) and £400k commercial mortgage. I've been advised the best way to introduce the money into the Ltd company that will own the business and hotel is to do so as a directors loan. We can then take cash from directors loan account upto the initial £400k invested (business willing). Aim to keep business for 10+ years. Is this approach the most sensible. We will be owner/occupiers.

Thanks

Gavin

pallet
Posts:49
Joined:Wed Aug 06, 2008 3:25 pm

Postby pallet » Wed May 10, 2006 5:44 am

I would think about buying your hotel in your own name and renting it to the Ltd company to pay the mortgage that way if the company fails your hotel and 400k are safe

gatkinson
Posts:33
Joined:Wed Aug 06, 2008 3:37 pm

Postby gatkinson » Wed May 10, 2006 11:27 am

That is an option, but it may be that for the first year there isn't enough cash available to pay rent, and anyway if the business fails the bank will have a debenture and personal guarantees on my wife and I regardless. I can't see any tax disadvantage of the approach we are going to take, can anyone else ?

despearate den
Posts:59
Joined:Wed Aug 06, 2008 3:25 pm

Postby despearate den » Thu May 11, 2006 4:54 am

i agree with pallet

if you owm the property in your own name you will only pay a maximum of 10% CGT tax if you sell the property at a profit. This will not apply if it is held by the company as it will pay tax at 30%. You will also pay tax on extracting the proceeds from the company.

By the way if there isnt enough cash to cover the rent do you anticipate the buisness is going to run at a loss at first.

If so the first few years may be better as a pertnership as the losses can be carried back against ant tax you paid in the previous 4 years.

At this sort of level of commitemnet i strongly suggest you sit down and talk to a professional on this!!

gatkinson
Posts:33
Joined:Wed Aug 06, 2008 3:37 pm

Postby gatkinson » Thu May 11, 2006 5:18 am

I got some professional advice !. The best approach is to purchase the property personally. We then lease the property to the company upto the amount that the commercial mortage costs in interest, this money is therefore paid to us with no tax due to the mortgage interest being an allowable expense. After that, take minimum £5k per person salary, and thereafter if any profits left then pay as dividend. In effect we get to take £25k (amount of mort int) plus £5k x 2 for a total of £35k per year without any tax/NI liabilities and we minimize CGT for the future.

Thanks !

despearate den
Posts:59
Joined:Wed Aug 06, 2008 3:25 pm

Postby despearate den » Thu May 11, 2006 5:34 am

im glad you did come to the same conclusion as pallet and i.

as a hotel it may qualify for a capital allowance claim (industrial buldings allowance).

The usual claim is 4% per annum so you could claim 16,000 a year as a tax deduction. This means you can extract that as rent from the company as well

Good luck!!

despearate den
Posts:59
Joined:Wed Aug 06, 2008 3:25 pm

Postby despearate den » Thu May 11, 2006 5:38 am

£32000

800000 * 4%

sorry


Return to “Business Tax”