I want to invest in solar panels for my home – should I use my limited company to do so?
As gas and electricity prices rise, an increasing number of people are turning to solar panels to try to cut costs. The question then arises – how can I do this most tax-efficiently?
For owners of a limited company, there are three main options to make this investment.
Option 1: Take an additional dividend and purchase the solar panels privately
This is the most straightforward approach and means that you will immediately own the solar panels directly. However, dividends will not be eligible for any tax relief, and assuming you are an additional rate taxpayer, will be taxed at 39.35%.
Option 2: Use your company to invest in the solar panels, and then gift these to you
This option is also relatively straightforward, giving a rapid transfer of ownership to you directly. As solar panels qualify for capital allowances, corporation tax relief would initially be obtained, however, as the market value would be the same on transfer as on purchase, this would be clawed back.
A one-off benefit in kind would be created, so as an additional rate taxpayer, you would pay tax at 45% on the value of the solar panels, and the company would pay Class 1A NIC.
Option 3: Use your company to invest in the solar panels, and then loan these to you
This option is less straightforward, and ownership remains with your company, which could cause challenges when your property is sold. However, your company would continue to qualify for capital allowances, and would therefore gain corporation tax relief.
An annual benefit in kind of 20% of the value of the solar panels would be created, so as an additional rate taxpayer, you would pay tax at 45%, and the company would pay Class 1A NIC.
There is the possibility that if the excess electricity is being sold by the company, the benefit could be time-apportioned, giving rise to extremely advantageous tax consequences.
This is open to HMRC challenge, as they may argue the solar panels were always available for your use, even if not actually used.
Worked example
Assumptions
- Additional rate taxpayer
- The useful life of solar panels – 10 years
- Corporation tax of 19%
| Scenario 1: Private purchase | Scenario 2: Company gift |
Scenario 3a: Company loan – 100% private use | Scenario 3b: Company loan – 1/3 private use | |
| £ | £ | £ | £ | |
| Initial cost to company | 15,000 | 16,829 | 12,150 | 12,150 |
| 10 years benefit in kind – cost to company | 3,657 | 1,219 | ||
| Total cost to company | 15,000 | 16,829 | 15,807 | 13,369 |
| Initial cost to individual | 5,903 | 6,750 | ||
| 10 years benefit in kind – cost to individual | 13,500 | 4,500 | ||
| Total cost to individual | 5,903 | 6,750 | 13,500 | 4,500 |
| Total cost | 20,903 | 23,579 | 29,307 | 17,869 |
You will see that as long as the private use of the solar panels is relatively low, a loan from the company is the best option, but as the private use increases, this rapidly becomes disadvantageous in comparison to private purchase.
It is therefore likely that for most people under these circumstances, a private purchase is the simplest and most tax-efficient. If you would like us to review your personal circumstances to determine the best route for you, please get in touch.
Disclaimer.
This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.
