Should property be in my name?
PL writes: I am about to buy new offices for my business, and have been offered different opinions on whether the property should be purchased by the company or owned personally and let to the company. The property will cost approximately £275,000 including costs, on top of which I anticipate a further £50,000 of fit out costs. I will be funding just over half of the purchase from personal funds and the balance with bank finance. What factors should I take into account when deciding by whom the purchase should be made?
The common commercial aim is to ring fence the ownership of a property from the business, writes Jon Sutcliffe, partner atKingston Smith LLP. There are many tax implications and it will also depend on your longer term expectations for the property and for the business.
Purchasing the property outside the company should protect the property from the business and, although not usually a problem, it will depend on your ability to raise the bank finance personally. Where there is a prospect of selling the business and property together, then you may want to take advantage of the reduced capital gains effective tax rates that can be achieved with Entrepreneurs Relief (ER), which will reduce your capital gains tax from 28% to 10%. To get ER on the sale of the property, it will need to occur at the same time as the sale of the company, and the relief will be restricted or eliminated if you charge the company rent for using the property. Since you will have bank debt to service, this latter condition may not be practicable.
Whether the property is personally owned or in the company, there is no problem with the company incurring the fit out costs. The fit out costs will comprise integral fixtures and “loose” fixtures for tax purposes. You can claim a 100% Annual Investment Allowance (AIA) on the first £100,000 of expenditure incurred in the year (£25,000 from 1 April 2012). If your business is part of a group of companies then they must be split across the group. Once you have claimed the AIA you can claim an annual writing down allowance on a reducing balance basis. On integral fixtures you can claim an annual writing down allowance of 10% (8% from 1 April 2012). On the “loose” fixtures you can claim annual writing down allowances of 20% (18% from 1 April 2012).
Other issues to consider are that the property will get 100% Business Property Relief for Inheritance Tax purposes where it is held within a company, and only 50% outside the company. Similarly, Stamp Duty Land Tax on a future sale of the property is likely to be higher than the corresponding Stamp Duty on the sale of the company shares if the property is owned by the company. Other solutions include using a company to hold the property, or a Limited Liability Partnership. Both routes have their own issues and advantages and you are recommended to get advice specific to your circumstances given the wide variety of potential issues to consider.