It’s important to manage your finances effectively when you’re self-employed, and that includes making the most of any assets you own - particulary when you’re operating as a limited company, as it can reduce your tax bill. So, should you sell your car or house to your business?
Every individual situation will be different, especially when it comes to the value of your vehicle or property. It’s always worth getting qualified financial advice on your particular circumstances, especially if you’re an IPSE member with access to a tax helpline and relevant offers from our partners. But is it something worth considering, or asking a financial professional about?
If you already own a car, it’s likely you’re using it for work as well as personal use. You can claim a mileage allowance or expenses to reclaim some of the costs for business purposes. But it’s unlikely to cover everything, and there are some limitations, including commuting to your usual workplace.
When the car is owned by your company, you’re able to claim a capital allowance to deduct part of the value from your profits before paying tax. It’s worth speaking to a financial advisor before deciding whether to claim a 100% first year allowance, a main rate allowance (18% of the value) or special rate allowance (6% of the value), as this will depend on how long you’re likely to keep the asset, whether it’s used for personal use, and the CO2 emissions rating.
Your business then covers the running costs, and if VAT registered, claims back those charges on servicing, maintenance, and repairs. And can benefit from the annual writing down allowances for depreciation.
Because they don’t count as cars, you can claim annual investment allowance (AIA), which allows you to claim for the full value of an item, on motorcycles, lorries, vans, and trucks.
You’ll need to sell the car to your business at a fair market rate, and to invoice the company. You can use a standard Word document or your usual invoicing software. And keep the original purchase invoices in your company records to prove your previous ownership of the car.
Claiming business expenses for using your personal vehicle isn’t particularly complicated, but if you’re using a company car for non-business trips it can get much more complicated.
Any personal use means the car would likely to incur a personal ‘Benefit in Kind’ tax charge, along as a Class 1A National Insurance charge, which is calculated from the official list price rather than the sale value. And any fuel used for personal trips will also incur a fuel benefit charge.
As a second-hand car, the value and tax relief amounts aren’t likely to be worth the effort. So, unless you’re going to use it exclusively for work, it’s probably going to incur more admin time or costs than you’ll save.
If you’ve bought the car using finance, then you’ll need to settle any outstanding amount before you’re able to sell it to your business.
Ultimately, it’s often easier to purchase or lease a vehicle specifically for your business if needed, keeping things clearly separated.
The main reason that you might want to sell a property to your own business is the tax difference if you’re already operating as a private landlord or plan to start renting it out.
The income is then subject to corporation tax rather than taxable personal income, and can also offer potential advantages for Inheritance Tax and Capital Gains Tax, as family members can be appointed shareholders or directors.
As with cars, any house or property will need to be sold at open market value, along with being subject to the usual costs and fees for both parties including; Stamp Duty, Capital Gains Tax, legal fees, conveyancing, and possibly early redemption charges on your existing mortgage. But if you have sufficient equity in the property, that can be used to provide a directors’ loan as the deposit for the limited company.
As with a company car, if you decide to live in a house that is owned by your own business, then you’ll incur a Benefit in Kind (BiK) unless you’re paying full rent at commercial rates.
While BiK is typically charged based on your personal income tax rate band, it can rapidly become complicated. So, it’s essential to seek professional financial advice before considering purchasing a home through your business, especially when you may also be using a directors’ loan as part of the sale agreement.
If an employer, such as your company, also pays any household bills or provides furniture, then these will be additional and separate taxable benefits.
You’ll also find a smaller selection of mortgage providers are willing to lend to a limited company. In addition to higher interest rates, they may also require personal guarantees from the company directors. And if you decide to sell the property in the future, your business will need to pay corporation tax on the profits, before you then take out taxable amounts as salary or dividends.
With something as substantial as home ownership, it really is essential to speak to a qualified financial expert to decide whether it’s worth investigating in your specific circumstances.
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