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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4995
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Purchasing a freehold retail property

Resolved Question:

I have a limited company say ABC with about 120k cash sitting in the bank account. Currently my limited company is paying for 2k monthly rent in an serviced office building. I have seen a freelease retail shop premise I would like to purchase so that I can run my limited company from there instead (thus pay rent to myself instead of someone else). It is on the market for 300k - the bank will in principal lend me upto 70% Can you kindly advise on what my options (e.g. same limited company/ diff limited company etc ) are on raising the deposit to purchase the premise detailing what my cost implications (and other considerations I need to be aware off)  are for each option?

Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
You say you have about £120k in your company bank account and you would consider investing that money in a commercial property. In principle, I would not form a new company to have that property as part of your portfolio unless it is your intention to build a sizeable portfolio of properties and then run a property management company. The rental you are paying now would go towards paying the interest on the loan and capital repayment. Interest paid would be a tax allowable expense in the company’s accounts. Invest in a property through another company - how are you going to take money out of company A to pay for an asset in the books of company B. This may have more implications than using the funds to buy a propertyin the same company. If it is a loan then it has to be on commercial basis. There is no real advantage in it as it would be tax neutral. In conclusion, I see your best option is to acquire the retail shop as a tangible asset in your present company. Any capital gain indue course would be chargeable to CGT at CT rate of 20% (CT rates are coming down in the near future as outlined in July 2015 Budget). I hope this is helpful and answers your question. If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Customer: replied 2 years ago.

Is it possible to purchase it as same company now and then perhaps later date transfer the property ownership into a different company name? The reason I am slightly hesitant in using the same company is because my current limited company is trading under a franchise license , so this property has nothing to do with the franchise (other than it is an office space for it) - so without looking at the small print I won't know the full impact when It comes to selling. It is likely I would want to keep the building for years and years to come but sell the business - so would having the same company poses problems when it comes to selling the business?

Expert:  taxadvisor.uk replied 2 years ago.
Terry, thank you for your reply.
There is nothing stopping you from buying the property in this company's name and then selling to the new company at a later date. You should be mindful of two lots of stamp duty and other conveyancing charges.
I would not forsee any problems in selling the franchise business whilst retaining the freehold building.
I hope this is helpful.
Customer: replied 2 years ago.

When you say I would not forsee any problems in selling the franchise business whilst retaining the freehold building.

do you mean this can be done under the same Ltd company? So how would this work ?

Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.
Depending on the nature of franchise, you will be selling the business and goodwill created as a going concern and that would not necessarily mean selling the premises from where the business is run. A scenario will be that the business is sold with an incentive to run that business from the premises at favourable rent.
I hope this is helpful.
Customer: replied 2 years ago.

Thanks Finally - With regards ***** ***** previous question: having the property in same limited company and then later transfer ownership to a separate limted company. What I meant was both limitted company own by myself . So apart from the stamp duty / legal costings - would it be able just some paper work exercise or does real money have to exchange hands given its "me" who owns both companies ? Can it be transferred at "zero" value or would there be complications?

Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.
You may be the only shareholder in both companies.. but you should be mindful of the fact that the company is a separate legal entity. The asset will be owned by the company and not you. You could not transfer it at zero value.
I hope it is helpful.
Customer: replied 2 years ago.

What I was trying to get at was how would it work under such circumstances? Do we really have to find another 300k to pay from my right hand to my left hand? Or can it be just a paper work exercise but paying the normal legal fees / stamp duty etc ?

Expert:  taxadvisor.uk replied 2 years ago.
Thanks for your reply.

As I understand it the property in Company A will be funded by
cash at bank and loan from the bank

The bank may require you to repay outstanding loan when the property is transferred to Company B in which case you would want the bank to provide a loan to company B to part pay for the property being transferred.

You are not really finding two lots of £300k.

If there is no debt outstanding when the transfer takes place then it is a paper exercise and your accountant at the time would advise on accounting entries.

I hope this is helpful and answers your question.


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Expert:  taxadvisor.uk replied 2 years ago.
I thank you for accepting my answer.

Best wishes.