Setting up company to buy rental property

lstmd

I have an oportunity to buy a property for approx €200k with a guaranteed rental income for ten years of €25k following eighteen months free rent period. If I purchased the property would I be better off setting up a company to buy the property to avoid a higher rate of tax on the rental income. I believe a surcharge is payable on undistributed profits. Please advise. Thanks.

elastico

lstmd wrote: »

I have an oportunity to buy a property for approx €200k with a guaranteed rental income for ten years of €25k following eighteen months free rent period. If I purchased the property would I be better off setting up a company to buy the property to avoid a higher rate of tax on the rental income. I believe a surcharge is payable on undistributed profits. Please advise. Thanks.

I looked at this before and buying in your own name is almost always better than through a company, best thing is to talk an accountant though.

srsly78

It only makes sense if you are managing a huge portfolio of properties and have lots of shareholders. If it's a "close company" (ie less than 5 major shareholders) then there are lots of extra surcharges, this makes it a non-runner. As above, talk to accountant - who will probably tell you NO.

lstmd

Was hoping a reduced corporation tax rate would enable quicker pay back of borrowings. When the loan is paid back I could take a wage from the company. I know the property would remain an asset of the company but I would have a rental income from it.

srsly78

It's almost as if the rules have been set up specifically to stop this kind of dodge

pedronomix

srsly78 wrote: »

It's almost as if the rules have been set up specifically to stop this kind of dodge

they have!!

and on disposal you get double dipped on CGT, the company pays and then the shareholders pay again!!

lstmd

Is it the surcharge that takes the benefit out of it?

lstmd

The unit is a retail unit. Am I correct in saying the capital allowance is 4% per year.

barneystinson

lstmd wrote: »

The unit is a retail unit. Am I correct in saying the capital allowance is 4% per year.

You are not. What capital allowance are you talking about?

lstmd

When computing taxable income are you not allowed a capital allowance based on the purcahse price of the building?

pedronomix

http://www.revenue.ie/en/tax/it/leaflets/it70.html

barneystinson

lstmd wrote: »

When computing taxable income are you not allowed a capital allowance based on the purcahse price of the building?

For certain types of building, yes, but not a retail unit.

pedroeibar1

lstmd wrote: »

I have an oportunity to buy a property for approx €200k with a guaranteed rental income for ten years of €25k following eighteen months free rent period.

That seems like a very sweet deal. How good / strong is the guarantee & guarantor? (Not looking for term or a name, just it is a little unusual, and wonder if the gtee will be effective.

lstmd

The rental income will be paid by a GP's practice who are not interested in buying the unit as there is a big difference in ages of the two people in the partnership. The are currently paying rent and not interested in buying as it would just add to issues exiting the partnership. What type of buildings are capital allowances allowed on. I understood 4% was allowed on an industrial building and gussed a retail unit would qualify. What expenses would I be allowed deduct from my rental income?

barneystinson

lstmd wrote: »

The rental income will be paid by a GP's practice who are not interested in buying the unit as there is a big difference in ages of the two people in the partnership. The are currently paying rent and not interested in buying as it would just add to issues exiting the partnership. What type of buildings are capital allowances allowed on. I understood 4% was allowed on an industrial building and gussed a retail unit would qualify. What expenses would I be allowed deduct from my rental income?

Not being funny, but well, THE expenses of the letting..!

pedroeibar1

lstmd wrote: »

I have an oportunity to buy a property for approx €200k with a guaranteed rental income for ten years of €25k following eighteen months free rent period.

pedroeibar1 wrote: »

That seems like a very sweet deal. How good / strong is the guarantee & guarantor? (Not looking for term or a name, just it is a little unusual, and wonder if the gtee will be effective.

lstmd wrote: »

The rental income will be paid by a GP's practice who are not interested in buying the unit as there is a big difference in ages of the two people in the partnership. The are currently paying rent and not interested in buying as it would just add to issues exiting the partnership. What type of buildings are capital allowances allowed on. I understood 4% was allowed on an industrial building and gussed a retail unit would qualify. What expenses would I be allowed deduct from my rental income?

Anyone investing 200k on a deal with your level of knowledge looks for professional advice. That suggestion has been made and it and key questions ignored. Your posts do not stack up. Furthermore, any medico retiring will either sell his share of a practice or more usually sell it on to another on an earn-out basis. A ‘retail’ unit fitted out for a medical practice, with an existing practice/business for sale at that purchase multiple is a no brainer for the existing tenants. You have not answered the key question on the strength of the guarantee and instead concentrate on a potential tax liability. Before that arises you first have to make a profit. Back to basics……..

daithi7

Go for it, it sounds a great medium term deal.

Try to secure your agreement as well as possible by adding penalty clauses for non compliance by your partnership tenants e.g. penalty fee s, break fees, clawbacks on rent free account & interest on rent free period waived rent if any break our other non compliance e.g. not paying rent, etc, etc, etc

No advantage at all with a company, the Irish system just ain't set up that way, even when you register for vat for property which is a bit daft, but it's probably a legacy of allowing shady corners for ffers to tax dodge.

Only thing is is limited liability in the event of an 1. accident or 2. insolvency , I.e. non payment of your loan to bank or other liabilities in the event your tenant is non performing or leaves or whatever. You can cover 1 with insurance and a good tenancy agreement I.e. get them to have good insurance and 2. Is not so easy but if you're getting bank finance may sure it's non-recourse , so at least in the event that you cannot pay your loans &/or other liabilities due to the building , at worst you only lose the building, and retain your other assets.

Hope this is of help, good luck!! :-)

pedronomix

The best advice you have got here is to get professional advice, along with the so-called negative,hard questions, the rest is just waffle.
Risk is an essential element of investment, this is a risk. The primary rule of investment is never ever invest money which you cannot afford to lose! How are you fixed if the whole thing goes belly up? Any other way is a polite word for gambling, if you don't know what you are doing, you are heading for tears.

dbran

There could be VAT issues involved and you need to get proper advice on this before you buy.

dbran

lstmd

I will seek professional advice on the above before spending this sort of money. I find it helpful to have some knowledge before speaking to a tax adviser. Thank's for all the comments above.

pedronomix

That is good to know, you now have plenty of nice juicy questions to ask!! Good use of the forum to get many perspectives. Good luck!

Jackos17

With regard to paying tax, I hear the best way to do it is setting up a company in Luxembourg where you deposit all your money and then use that company to loan the Irish company the money for the house at a variable interest rate and just keep that interest rate inline with whatever profit your making so you never officially make a profit in Ireland and don't have to pay any tax.

pedronomix

There is a very big difference between something you may have heard and the precise detail and effectiveness of any tax "scheme".