Can a company buy a house for you to live in?

[HollowTalk]

If someone had a private limited company which earned a lot of money - sole shareholder - and had very few expenses then could they buy a house using company funds and live in it with their family? Would the home then be tax-free because it's a business expense? I was just thinking about this the other day so don't worry I am not in that position myself!

I imagine there would be a lot of tax implications later, if they died. If they left the business to their family then would the family be able to continue living there without paying additional tax?

Depends what you mean by tax free.

I suspect that it's use would be seen as a benefit so taxable. May still be a cheap option. The property would be an asset and disposed of in the same way as any other company asset.

Do you mean in the same way that company cars are treated?

Any increase in value when it's sold would be so heavily taxed that it wouldn't be a tax saving at all...

What percentage tax would be paid on the profit?

Many landlords have set up a limited company to buy a house. They pay tax at company rates. Here's a recent article for you. Lots about it online bestgapp.co.uk/news/buying-property-through-a-limited-company-prime-london/

You'd really have to talk to a solicitor a out it. There are rules regarding employer supplied housing. What the impact would be if the person in the house wasn't an actual employee, don't know, presumably they'd just be in a landlord/tenant position.

I think I had just never thought of a limited company buying a residential home for the owner of the company to live in. It's not a situation I am in but a friend of mine is doing very well with her company and it's something we were just idly chatting about.

There are a few issues to unpack here.

The company money is not your money. You can’t just spend company money on you and not correctly account for it, and a company can’t generally give a benefit to a director or employee without it being treated correctly for tax.

Why would the company benefit from doing this, and how are you proposing to deal with tax on the benefit-in-kind of living in the house. Are you proposing to pay a market rent on it?

The right person to ask in the first instance is your accountant.

I understand that certain villainous miscreants of the 2008 crash bought properties they live in using offshore trusts. Sounds like that's the way to go if you want to cheat the rest of us that pay the tax we owe.

I think that you have that the wrong way round. The crash was caused by home owners in the US defaulting on their mortgages.

The crash was not caused by home owners

Probably worth looking at purchasing via a SIPP

It really was, the event which kicked it off was an upswing in defaults.

It then gained momentum because the level of systemic risk that was held by investors and banks had been understated. Banks assumed that they could default on the mortgages, repossess the properties and sell them to cover the debt, but the prices dropped too far and too quickly to allow this to happen.

The mechanism by which the contagion hit banks was that we (I was a senior interest rate trader at the time in a US bank) had held onto far more of the alt-A tranche of the pooled debt which we were supposed to be trading, not buying and holding. This had idiotically been marked “to model” for far longer than it should have been, which let traders show profit by holding onto what turned out to be contracts worth far less than they could be sold for.

What did you think caused it?

I've already said that I wasn't talking personally. I don't own a business and wouldn't do this if I did. It's just something that has never occurred to me that anybody might do, that's all. I do believe in paying taxes, so please let off!

You can’t buy residential property in a sipp

You won’t get main residence relief nor annual CGT exemption when the company comes to sell it, so a hefty tax bill on the increase in value whilst owned by company.

Company won’t get tax relief on purchase, so no way to reduce corporation tax.

They’d have to pay market rent to the company, on which the company would pay tax, or accept it as a taxable benefit in kind, on which personal tax would be due.

When the company sells the property and the owner wants to take the money or liquidate the company, there’s personal tax on the amount withdrawn/paid.

So overall a pretty daft thing to do, hence why virtually no one does it!

In addition to the tax implications above you also incur a higher Stamp Duty Land Tax bill if you buy through a company.

@user1497207191 I’m sure you can if it’s mixed use.

The property would have to be a legitimate business expense exclusively for the business, which it wouldn't be if the family was living in it.

Even if the property was used for the business, eg childminding, a B&B, you wouldn't be able to claim the whole cost, you'd have to proportion the expenses between the business and the family, so it's unlikely that you can just buy a house to live in and claim that it's 'for the business'.

If a director is living in it rent free there will be a benefit in kind on the rent. The director will pay tax and the company will have to pay class 1a national insurance contributions.
Expenses can only be claimed if they are wholly and exclusively for business use. Normally a director can claim a set amount each week (£6) for use of home as office.

I do wonder if the people getting upset at the idea that companies are using tax “loopholes” have an ISA, a pension, use their tax-fees allowance or have ever bought booze or cigarettes in duty-free.

The tax departments of the government are pretty good at ensuring that obvious loopholes that let people “unfairly” avoid tax are closed as they arise, and most apparent loopholes are there for very good reasons.

A common complaint on corporate taxation will be that “Amazon (or another company) paid only 0.1% tax on £200 billion of revenue”, which completely glosses over the fact that companies are taxed on profit, not revenue, and that this is clearly the right thing to do.

If I opened a company selling milk, which did phenomenally well, I might have revenue of £100 million a year, and be paying £99 million a year for the milk. If I then pay my staff £800k, and have £150k per year overheads, then how can it possibly be right that I am taxed on the £100m? The company is making £50,000 per year providing a good service, and should be taxed on this amount.

Provision of housing for employees isn't uncommon. But it isn't the residents property but the companies. It may well be subject to misuse.

I do wonder if the people getting upset at the idea that companies are using tax “loopholes” have an ISA, a pension, use their tax-fees allowance or have ever bought booze or cigarettes in duty-free

ISAs and pensions aren't the same, nor are duty free booze or cigarettes within the published allowance. Even the Government encourages people to use those and there's no deceit or economy with the truth.

Loopholes are when people manufacturer a situation to claim an allowance or tax reduction, eg in the case of the OP, claiming that the family home is in fact a business premises when it's clearly not the case.

But there’s no loophole in the OP’s scenario. It doesn’t work.