renting commercial premises out to own business

AndreaMcAndreaMc Posts: 1MAAT, AAT Licensed Accountant
A client of mine has brought the premises to there shop out right personally. They want to charge rent to the business which is a limited company. How can I figure out how much rent they should be charging there Ltd company? Also baring in mind they are not making a lot of money at the moment but we can put it in a directors pot for when the business can afford to pay it.

Comments

  • MickdundeeMickdundee LondonPosts: 382Registered
    edited December 6
    You don’t figure it out. They do. They can charge the company whatever they please.

    You advise on the consequences of the what they propose.
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderPosts: 1,132Moderator, MAAT, AAT Licensed Accountant
    You would need to run some calculations as to what is the most tax efficient.
    The owner can charge rent and this will be deductible for CT purposes at 19%.
    However the owner needs to declare the rent as income so will be taxed at 20/40/45 %
    He/ she can charge a market rate however this will deny ER on disposal of the asset (associated disposal). If charging less than MV a proportional amount of ER relief could be available.
  • readerreader Experienced Mentor Posts: 686MAAT, AAT Licensed Accountant
    Given that Entrepreneur's Relief (10% capital gains tax rate) is potentially available on disposal it may not be worth charging any rent, especially if the value of the commercial property will increase significantly.

    Although worth noting that ER could potentially not be available by the time your client wants to dispose of the property- the government could get rid of it at the stroke of a pen if it felt that it was losing too much in tax.
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