Property Income Wheeze
BIG WAL
Registered Posts: 133 Dedicated contributor 🦉
Happy New Year to all. Can anyone help with property related query ?
A client owns both A Co and B Co. They have very different trades and both trades run at a loss.
But B Co has letting income from residential property, which can’t be offset against the trading loss
and therefore has a CT liability.
So he’s decided that A Co will charge a management fee to B Co for administering the properties.
(Assume it can be backed up with proper paperwork). On that basis, A Co still won’t pay CT because
even after the management fee income, there's still a small loss.
For B Co, the management fee can quite legitimately be offset against the property income– mitigating
tax on the property income.
Sounds like a good wheeze (just like Starbucks) –or is there a catch ?
A client owns both A Co and B Co. They have very different trades and both trades run at a loss.
But B Co has letting income from residential property, which can’t be offset against the trading loss
and therefore has a CT liability.
So he’s decided that A Co will charge a management fee to B Co for administering the properties.
(Assume it can be backed up with proper paperwork). On that basis, A Co still won’t pay CT because
even after the management fee income, there's still a small loss.
For B Co, the management fee can quite legitimately be offset against the property income– mitigating
tax on the property income.
Sounds like a good wheeze (just like Starbucks) –or is there a catch ?
0
Comments
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Happy New Year to all. Can anyone help with property related query ?
A client owns both A Co and B Co. They have very different trades and both trades run at a loss.
But B Co has letting income from residential property, which can’t be offset against the trading loss
and therefore has a CT liability.
So he’s decided that A Co will charge a management fee to B Co for administering the properties.
(Assume it can be backed up with proper paperwork). On that basis, A Co still won’t pay CT because
even after the management fee income, there's still a small loss.
For B Co, the management fee can quite legitimately be offset against the property income– mitigating
tax on the property income.
Sounds like a good wheeze (just like Starbucks) –or is there a catch ?
I would have thought that this transaction would have to be disclosed in both sets of accounts as a related party transaction and that HMRC could challenge the valuation of the transaction, i.e. argue that the valuation of the management fee is too high.0 -
Thanks - I hadn't thought of that. I'll make sure it's disclosed in both accounts, and client is advised that while it worksfor tax, there's a risk of it being challenged.0
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