Owner Occupier and tax question

[GingerBeer]

Hi,

I own a limited company that currently rents a property for its activities and I would personally like to purchase a freehold property myself and let my company be the occupier and effectively pay myself the rent which in turn would pay the mortgage.

The mortgage would be capital and interest and I understand that the capital part of the repayment would be subject to CGT so this would have to be taken into account when working out what the rent needs to be.

The company itself is very profitable and also becoming more profitable year on year with the corporation tax unfortunately doing the same! Current rent is very cheap and the company can afford an increased rent which will reduce the profit and tax on the company - that is my thinking but I would like to hear anyone elses views or suggestions that they may have or add anything that I may have missed out!


Paul

 

[IANL]

Hi,

I own a limited company that currently rents a property for its activities and I would personally like to purchase a freehold property myself and let my company be the occupier and effectively pay myself the rent which in turn would pay the mortgage.

The mortgage would be capital and interest and I understand that the capital part of the repayment would be subject to CGT so this would have to be taken into account when working out what the rent needs to be.

The company itself is very profitable and also becoming more profitable year on year with the corporation tax unfortunately doing the same! Current rent is very cheap and the company can afford an increased rent which will reduce the profit and tax on the company - that is my thinking but I would like to hear anyone elses views or suggestions that they may have or add anything that I may have missed out!


Paul

I did a similar thing when I had a second property vacant. My company rented it from me for storage. There was a proper agreement drawn up.

 

[MillerConsultancy]

the capital part of the mortgage isnt subject to cgt, cgt is calculated on the "gain " made approx sale proceeds less cost, and is not realised until the property is sold.

What you have in mind is fine except that if you own the building then you have to declare the rent on your personal tax return, so any profit after loan interest will be subject to tax and if you a higher rate taxpayer, may be more than the saved corporation tax

 

[David Griffiths]

You may have missed the fact that renting the property to the company will almost certainly mean that it doesn't qualify for entrepreneur's relief for CGT when you come to sell it. Of course, it may fail for other reasons, so you need to discuss the whole situation with a professional

It might also be the case that if you draw up a formal agreement for a high rent, it will push the business rates up/

 

[GingerBeer]

Thanks for the responses so far - all very interesting points made and noted.

To throw a bit more information in I would be looking to solely purchase the freehold and in 20 years time once paid off the rent would then be my pension. The company has been established almost 70 years and I am hoping that my sons will take over the business so for the foreseeable future I would not expect to have to sell, but one very important thing that this raises is that should the freehold be held in a Trust? (Value of freehold circa £800k)

I will of course be seeking the advice from a professional in due course but its very interesting to hear others points of view - much appreciated.

 

[IANL]

Thanks for the responses so far - all very interesting points made and noted.

To throw a bit more information in I would be looking to solely purchase the freehold and in 20 years time once paid off the rent would then be my pension. The company has been established almost 70 years and I am hoping that my sons will take over the business so for the foreseeable future I would not expect to have to sell, but one very important thing that this raises is that should the freehold be held in a Trust? (Value of freehold circa £800k)

I will of course be seeking the advice from a professional in due course but its very interesting to hear others points of view - much appreciated.

This requires some serious important tax planning.