Company Director & Property Quiery

bigmuggsy

Hi

I've got a new client who owns the property that his company, and his company alone occupies. He purchased it about 2 years ago.

My quiery is he pays himself rent each month out of the business, which has been treated as an allowable expense in last years accounts - is this correct? The previous accountant apparently said he was ok to do this, i'm not 100% sure and can't find anything on the revenue website to clarify it. Can anyone out there help?

Many thanks

[Deleted User]

Is the business a limited company or sole trading?

If the guy is a sole trader and he personally owns the building then he can charge the business rent for it. He would however have to declare the rent on his tax return as other (non business) income.

I believe I am right in saying this but I stand to be corrected.

bigmuggsy

Hi

Thanks very much for the quick reply.

No, he's the director & shareholder of a limited company, who occupy the premises to which he pays himself the rent.

[Deleted User]

bigmuggsy wrote: »

Hi

Thanks very much for the quick reply.

No, he's the director & shareholder of a limited company, who occupy the premises to which he pays himself the rent.

Ok,

So he owns the building himself. I am assuming he pay himself a wage?

I would assume that he can charge the business rent but he would have to fill out a self assessment for the rental income as an individual also stating his salary details and dividends (if paid any) on the self assessment form.

Business profits will be stated on the business tax form as usual.

bigmuggsy

Hi

Yes, he pays himself a small salary up to the threshold, the rest dividends.

Many thanks for your help on this.

Cheers.

deanshepherd

I both agree and disagree with Don Juan!

For a company, as in your case, it is perfectly acceptable to charge a market rent and declare that as rental income on your tax return. Be careful if the business is likely to be sold any time soon as that procedure may severely dent any entitlement to entrepeneurs relief.

For a sole-trader, you cannot charge yourself rent so you cannot put it through the accounts and add it as rental income on a tax return. Similarly you cannot pay yourself a salary from your own sole-trader business.

Gem7321

Agreed with Dean. As a sole trader you can get away with a Use of Home as Office claim if you do some work at home, but you can't charge yourself rent.

AdamR

deanshepherd wrote: »

Be careful if the business is likely to be sold any time soon as that procedure may severely dent any entitlement to entrepeneurs relief.

I've heard this before - how exactly does it affect entitlement? Aren't the 5% shareholding and employee for two years criteria still met?

[Deleted User]

Gem7321 wrote: »

Agreed with Dean. As a sole trader you can get away with a Use of Home as Office claim if you do some work at home, but you can't charge yourself rent.

But in this case it is a limited company.

Gem7321

Don Juan wrote: »

If the guy is a sole trader and he personally owns the building then he can charge the business rent for it. He would however have to declare the rent on his tax return as other (non business) income.

This is what I was replying to, this is incorrect and someone else could have read it and used it.

[Deleted User]

Oops, sorry my mistake. Didn't realise what i had put. Was thinking about a ltd company at the time.

Nilesh Mandvia

AdamR wrote: »

I've heard this before - how exactly does it affect entitlement? Aren't the 5% shareholding and employee for two years criteria still met?

If you charge market rent for use of personally owned property, this property ceased to be classed as a business asset, hence loses the entitlement of entrepeneurs relief on property. Meaning you end up paying CGT at 18% instead of 10%.

AdamR

And it will be restricted if rent is below MV I assume? Doesn't matter to me now, I had my exam Wednesday; I was just curious.

Thanks for taking the time to reply though.:001_smile::thumbup1: