As a first-time buyer, it’s tempting if you’re already a business owner to let the company acquire the residential property for you. The thinking goes that it’s probably the same as buying it personally and that there won’t be any tax complications when pursuing this strategy for initial homeownership. Plenty of commercial property companies buy residential property all the time, don’t they?
The above are common questions and assumptions. In this article, we look at this controversial topic to see whether it makes any sense to do it and what alternatives you have as a business owner?
Buying a Home Through a Limited Company
Buying a home that you plan to live in through a company is not that same as a buy-to-let investor holding rental properties inside a limited company. It’s treated completely differently for tax purposes.
Essentially, companies and the tax system in the UK were never designed for individuals to own a home through a business. Indeed, in another scenario, if taking out a personal mortgage and the company pays the mortgage for the owner, this amount must be repaid in that year or the owner will face additional income tax on it. This provides a good indication that it seriously muddies the waters when trying to own a personal home through a business entity.
Is it Safe to Buy a Home Through a Company?
Generally speaking, no it’s not.
Should the company ever get into difficulties and go into receivership, the assets of the business, including your home, will be sold off. While you may be the main or sole shareholder of the business, any outstanding debts or legal consequences for the businesses name must be satisfied first with the home sale likely being the way to accomplish this. As a result, you likely would lose the roof over your head.
Owning a home in your name prevents this type of outcome because it means legally separating it from the limited company.
How Else Can You Raise Funds to Buy a Home?
Another approach is to sell part or all of the business to cash out part or all of the ownership stake. The post-tax proceeds can be used to fund the purchase of a home. With a substantial cash deposit, preferential mortgage rates are likely if you have another employment once you’ve sold the business.
For example, if you’re an independent financial advisor, then you can market your client bank with considerable funds under management (FUM) through a site like RetiringIFA.co.uk. They connect sellers with other IFAs looking to expand their FUM through acquisition.
Other businesses and online ventures can also be marketed through brokers. Small brokers usually stick to their knitting with specific business types while the larger ones represent many types of businesses (online and offline) and market them through their extensive email list.
It is possible to purchase a home through a business, but the right way to do it is to sell off part or all of the business interest to create unencumbered funds to do so. This avoids complications later which makes life much easier in the long run.