Can my Company pay to build a new office on land i own

[Pigsfoot]

Hi, I have a very large plot ( 4 acres ) of land of which my residential property is part of. I have built an detached building with the intention of moving my business into it. The space includes office space for staff, meeting room, storage and parking. The build cost was circa 150k plus VAT, I am willing to only take a peppercorn rent ( nothing ) for the land it sits on.

We currently rent an office which is to small hence why i built this with the intention to move out of the current office and move into this. The finances show that after 4 years the saving in rent is more than the build cost and the business saves money plus has larger premises to expand into.

After submitting my accounts to the accountant they have said the business can not pay for the office build as it is on my property and i will need to personally pay the build costs back to the business or it goes down as a Directors loan. However i can then charge rent to the business. The issue is i don't have 180k cash to clear the loan. If i took a dividend to clear it thats alot of tax plus if i rent it to the business i then pay tax on the rental income.

The whole plan was to save money by not paying rent.

I do appreciate there may be an issue in the future if i were to ever sell the home and never say never but that is not on our radar. We have lived here for 23 years, mortgage is paid off and the long term plan is to Will the property to the kids.. i.e. we do not intend on ever moving.

Is my accountant right ? Just because i have gifted the land to build the office i don't understand why the business can't pay for the build, especially with the long term goals in mind. Any advice or things to go back to the account with and ask them to check again would be appreciated. Happy to pay / talk to another accountant with expertise in this area if there is a recommendation.

 

[Scalloway]

The first question I would ask is the company's name on the title deeds for the land?

Have you gone through all the legalities involved?

 

[Pigsfoot]

The first question I would ask is the company's name on the title deeds for the land?

Have you gone through all the legalities involved?

Sorry if my original question wasn't very clear.

No the company would not be on title deeds for the land.. it would ultimately be Lease hold built on my own land hence the need for a peppercorn rent.

If my legalities you mean planning permission etc, of course!

My question is with regard to Tax and why the company can not pay for the build, not to do with the actual build itself. The build was finished in December 2023 and has all been signed off by planning and Building control.

 

[Scalloway]

I would have thought the lease would need to have been in place before construction started.

 

[Red Wood]

Interesting post. Following as I have a similar idea in the future.

 

[WaveJumper]

Unfortunately I would say your accountant is correct hopefully some UKBF members will come up with a possible solution. Personally my first thought would be a loan and I would forget the pep acorn rent and charge the company say 30k a year in rent (or more) until your loan is cleared.

My son is looking to do the same but is “personally” funding the build, I would add your build coats seem pretty substantial that must be quite an office block you put up.

 

[Pigsfoot]

Unfortunately I would say your accountant is correct hopefully some UKBF members will come up with a possible solution. Personally my first thought would be a loan and I would forget the pep acorn rent and charge the company say 30k a year in rent (or more) until your loan is cleared.

My son is looking to do the same but is “personally” funding the build, I would add your build coats seem pretty substantial that must be quite an office block you put up.

Hopefully if the answer is no someone can explain why as i don't understand why its an issue. Its a business decision based on savings.

Re the build, yes, quite substantial, approximately 150 mtrs footprrint with 2 x 13 x 6 mtr open plan rooms, reception area and usable space upstairs for meeting area & storage. 16 Kwh Solar system with 12 Kw of battery storage.

Not sure why i cant post a link but it won't allow me, try this ( phot of building ) - h t t p : / / i.ibb.co/phMVy74/Office.jpg

 

[Porky]

Hmmm
Gawd they try and tax you every which way..

What you propose makes perfect commercial sense. I don’t have an answer to this but rather than it being your business lends money to you to build office on your land hence accountant telling you it’s a benefit to you, what if your business lends money to ltd company 2 which builds the office and owns the office on your land. That way no direct benefit to you but if you ever want to sell office in the future the company 2 pays any CGT and massive personal tax hit then if you took the money out.

Just thinking, must be another way to skin this rabbit - I will watch thread and await the accounting gurus - must be an angle here - good luck

 

[fisicx]

My accountant says you should have leased the land to the company. The company could then have build the new office block.

Because the lease is in your name the company can only pay you rent, they can never own the building.

To do as you are suggesting could be considered tax avoidance.

 

[Pigsfoot]

My accountant says you should have leased the land to the company. The company could then have build the new office block.

Because the lease is in your name the company can only pay you rent, they can never own the building.

To do as you are suggesting could be considered tax avoidance.

Putting a Lease in place is no problem at all, hence the reason for the peppercorn rent. If that needs to be more inline with market value for the land used thats no problem. The build was started and finished in the same financial year which is just awaiting sign off so if i can get some clarity on the issue i can have a lease drawn up in days.

 

[Newchodge]

Putting a Lease in place is no problem at all, hence the reason for the peppercorn rent. If that needs to be more inline with market value for the land used thats no problem. The build was started and finished in the same financial year which is just awaiting sign off so if i can get some clarity on the issue i can have a lease drawn up in days.

I think there would still be a problem because the lease was not in existence when the build took place.

 

[WaveJumper]

Just wondering why this was not discussed with accountant before going ahead and more importantly what does your accountant now advice as being the best way forward for you ie the most tax efficient solution.

 

[Pigsfoot]

I think there would still be a problem because the lease was not in existence when the build took place.

Lets assume it was in place, does that resolve the issue?

Just wondering why this was not discussed with accountant before going ahead and more importantly what does your accountant now advice as being the best way forward for you ie the most tax efficient solution.

It was discussed with a solicitor who spoke to an in house tax adviser but the tax advice wasn't official and more of a favor via my solicitor. Passing the info into the accountant and created a disagreement. In Hindsight i maybe should of spoken to him too.

The accountants advice is as per my original note, to pay it off and charge the company rent.

 

[fisicx]

Lets assume it was in place, does that resolve the issue?

Only if the company paid for and built the office.

Right now the only real option is for the company to pay you rent.

 

[Pigsfoot]

Only if the company paid for and built the office.

Right now the only real option is for the company to pay you rent.

The company did pay, its all in the original question asked.

 

[fisicx]

The company did pay, its all in the original question asked.

But because you are the freeholder and the company doesn't have a lease you need to pay the company back.

If you had employed a builder to build the office you would have to pay for the work. All that happened in this case is the company contracted the builder not you. It's still your building and you need to pay for your building.

 

[Pigsfoot]

But because you are the freeholder and the company doesn't have a lease you need to pay the company back.

If you had employed a builder to build the office you would have to pay for the work. All that happened in this case is the company contracted the builder not you. It's still your building and you need to pay for your building.

You are making assumptions, the company contracted the builders, all invoices are in the companies name, the company paid all the bills.

My ONLY association is i own the land and happen to be the Director of the company that paid for the build. Why is that any different to someone else owing land and the company builds on their property with a lease?

 

[DWS]

You are making assumptions, the company contracted the builders, all invoices are in the companies name, the company paid all the bills.

My ONLY association is i own the land and happen to be the Director of the company that paid for the build. Why is that any different to someone else owing land and the company builds on their property with a lease?

Was the lease in place between you and the Ltd Company before the building work commenced?
That is the important thing and is a matter of fact, it either was or wasn’t

 

[Newchodge]

You are making assumptions, the company contracted the builders, all invoices are in the companies name, the company paid all the bills.

My ONLY association is i own the land and happen to be the Director of the company that paid for the build. Why is that any different to someone else owing land and the company builds on their property with a lease?

THE LEASE is the differrence.

 

[Red Wood]

If it all hangs on the lease being in place, just back date it.. how would they ever know?

 

[Pigsfoot]

If it all hangs on the lease being in place, just back date it.. how would they ever know?

My thoughts exactually.... at the end of the day the lease is between the land owner ( me ) and the business ( me ). I do actually have a lease already written up it dated before the build started, it just doesn't contain a signature ( but it will along with a witness signature too ).

I am going to see a specialist Tax adviser with commercial property experience at the end of this week, i will report back with the news

 

[Newchodge]

My thoughts exactually.... at the end of the day the lease is between the land owner ( me ) and the business ( me ). I do actually have a lease already written up it dated before the build started, it just doesn't contain a signature ( but it will along with a witness signature too ).

I am going to see a specialist Tax adviser with commercial property experience at the end of this week, i will report back with the news

You may find that some professionals will be reluctant to assist in something that appears fraudulent, especially as your accountant and solicitor already know that no lease was in existence.

 

[fisicx]

Why is that any different to someone else owing land and the company builds on their property with a lease?

Because that's how the law works. You lease the land to the company. The company can then do what ever they want (within the confines of the lease).

The lease is at the heart of everything.

My thoughts exactually.... at the end of the day the lease is between the land owner ( me ) and the business ( me ). I do actually have a lease already written up it dated before the build started, it just doesn't contain a signature ( but it will along with a witness signature too ).

The land registry will ask awkward questions as the lease needs to be registered within 2 months of signature.

This is exactly what has happened to the buildings next door. They have started a new build on land that belongs to someone else. It's now all stopped because the accountants have pointed out anything built on the freeholders land belongs to the freeholder. There is no lease.

 

[Red Wood]

You may find that some professionals will be reluctant to assist in something that appears fraudulent, especially as your accountant and solicitor already know that no lease was in existence.

He may also find some professionals that are willing to assist!

Accountants are there to advise, the solicitor doesn't need to be involved.

Nothing illegal about doing a lease on a back of a packet of cigs.

Bending the truth, maybe, however I wouldn't lose sleep over it.. They already take too much from those that contribute.

 

[Newchodge]

He may also find some professionals that are willing to assist!

Accountants are there to advise, the solicitor doesn't need to be involved.

Nothing illegal about doing a lease on a back of a packet of cigs.

Bending the truth, maybe, however I wouldn't lose sleep over it.. They already take too much from those that contribute.

Fraud, tax avoidance, not bending the truth. Accountants and solicitors are both required to report tax avoidance

 

[Red Wood]

Fraud, tax avoidance, not bending the truth. Accountants and solicitors are both required to report tax avoidance

Avoidance and Evasion. two very different things.
However, your point stands. Although I would still back date the lease and pays my money, take my chances on this situation.

 

[fisicx]

Avoidance and Evasion. two very different things.
However, your point stands. Although I would still back date the lease and pays my money, take my chances on this situation.

Except the land registry will reject the lease if signed more than two months ago.

 

[Red Wood]

hmmm.. back date it two month and say there was an informal agreement to create an official lease when construction was nearing completion, or some sort of words to that effect.

 

[Pigsfoot]

Except the land registry will reject the lease if signed more than two months ago.

Only leasehold agreements that are longer than 7 years have to be logged with the land registry, I have checked and my lease is for 5 years as that is one year more than the break even point for the finances ( i.e. after 4 years the company is saving money based on our current rental office ) with an option to extend for 5 years at a time.

 

[Ozzy]

If it all hangs on the lease being in place, just back date it.. how would they ever know?

Bending the truth, maybe, however I wouldn't lose sleep over it.

Note for people reading this in the future who need advice: I would not recommend this. It just isn't worth 'bending the truth' for the risk of prosecution, regardless of anyone's views on whether tax is fair or not.

 

[WaveJumper]

Note for people reading this in the future who need advice: I would not recommend this. It just isn't worth 'bending the truth' for the risk of prosecution, regardless of anyone's views on whether tax is fair or not.

You mean (for those reading in the future) take the old school approach and get advice before embarking on a major project

 

[Mr Dibb]

I would look into:

1) Get the builders to reissue invoices to you instead of the company, so you were the one building it.
2) Sell the land + building (freehold or 1000 year lease) to the company for £180k
3) Use the invoice from 2 to repay the directors loan

But I am not an accountant by any stretch

 

[Newchodge]

I would look into:

1) Get the builders to reissue invoices to you instead of the company, so you were the one building it.
2) Sell the land + building (freehold or 1000 year lease) to the company for £180k
3) Use the invoice from 2 to repay the directors loan

But I am not an accountant by any stretch

Will that create CGT issues?

 

[WaveJumper]

I suspect whatever avenue the OP goes down now as he's already committed there is going to be a rather large tax liability pending unless his accountant can come up with a better way forward.