Using your company to buy your home was once relatively tax efficient, despite it counting as a taxable benefit in kind. Generally, the tax and Class 1A NI liabilities were modest, but this meant company ownership of homes became sufficiently popular that HMRC introduced higher rates of stamp duty land tax (SDLT) and a new tax, the annual tax on enveloped dwellings (ATED), to make the exercise much less favourable.
The current SDLT holiday applies to company (as well as personal) purchases of homes of up to £500,000 and so is again encouraging clients to look at this option.
If your company buys a home for you, a higher rate of SDLT of 15% applies if the property costs more than £500,000. On top of this your company will have to pay the ATED for any year in which it owns a dwelling worth £500,000 or more. In 2021/22 for very high value properties, the ATED is £237,400!
Another significant disadvantage to your company buying and owning your home is that when it’s sold the capital gains tax (CGT) private residence relief won’t apply. That means your company will have to pay corporation tax (CT) on the full amount of any profit (capital gain) it makes.
Unless there are non-tax factors affecting the decision – or your property is unlikely to ever reach the value where the ATED applies – getting your company to buy your home is unlikely to be tax efficient. However, there’s an alternative way you can use your company’s money to help with the purchase of a new home; instead of borrowing from a high street lender your company can lend you the money interest free.
The loan will be a benefit in kind but the tax is relatively modest. The amount on which you’ll be charged is 2.25% of the average loan balance over the tax year. So, if the balance is, say, £250,000 you’ll be taxed on £5,624. As you repay the loan the amount on which you’re taxed reduces.
There will also be a one-off tax charge for your company, being 32.5% of the loan. However, it’s a temporary tax (more a cashflow penalty) which HMRC will refund each year that the balance of the loan reduces. At current rates the interest your company would lose from having to pay this . bill is minimal.
For tax saving tips contact us – call Marie Sheldrake, Tom Hulett or Mike Wilcox on 01225 445507]