Business Doctor: Can my company help with buying a home?
SP writes: I have built up healthy cash reserves in my company over the years, after drawing a basic salary and dividend. My daughter is looking to buy a home and I would like to use some of the company reserves to help. Can I give her some shares so she can receive a dividend, should I take the money out myself, or can the company lend it to her?
Each option you have outlined is likely to give rise to a tax charge, writes Jon Dawson, partner at Kingston Smith LLP.
Gifting shares to your daughter would ordinarily give rise to capital gains tax based on the company’s market value. You would need to assess the company value and likely tax payable, although you may qualify for entrepreneurs’ relief, which reduces the tax rate to 10%. A possible alternative would be for you and your daughter to make a joint claim for your capital gain to be “held over” and taxed in her hands when she disposes of the shares.
If your daughter received dividends, she would be liable to pay tax on them. The tax rate would depend on her other income, although she would receive the first £5,000 of dividends tax-free under the new dividend allowance. If you took more dividends, you would probably pay tax on them at 32.5%.
The company could lend money to your daughter, although this would fall under the loans to participators rules. The company would have to pay the taxman 32.5% of the sum involved, and would get this back only when the loan was repaid. There could also be a taxable benefit in kind unless the company charged interest of at least 3%.
A loan would be the cheapest tax option, provided the loan is repaid, although it would have an immediate cashflow disadvantage.