I have a h&w client who jointly own a 4 bed property in which they live (PPR). They have converted 2 bedrooms of their home into bed and breakfast accommodation, and rent these rooms on weekends only. They also provide breakfast and meals for paying guests. The paying guests have unrestricted access to the house, the lounge, kitchen, dining room and gardens. The business has been trading from inception as a limited company and is now 4 months old.
Given the business is incorporated, and the property is owned by the shareholders not the company, can the shareholders recharge a reasonable element of the property running costs (mortgage costs, light and heat e.t.c) to the company? Presumably the recharge would be done on a basis of occupancy. E.g. if the 2 available rooms were fully let this would result in 104 days in the year where 50% of the household costs would be attributable to the paying guests. 104/365 * 50% = 14% recharge rate.
The household bills are in the name of the h&w and not the company name. The recharged costs would represent income to h&w but there would be equal and offsetting costs for h&w resulting in nil net income to h&w. Would this arrangement work?
From a CGT perspective, the element of business use which the property performs would be subject to CGT.
Would lettings relief and entrepreneurs relief be available to h&w to mitigate any future CGT which may arise? Any other issues worth considering?
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Replies (2)
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Too many questions for me !
Why did they set up as a limited company?
Are they insured and mortgaged properly on this basis?
Are they any bills going through the limited company at the moment?
Unlikely they would be entitled to lettings relief, etc when they are in effect renting to a limited company
If they recharge I would say that they needed to do self employed accounts to show the expenditure and the associated income
Depending on their other income is it even worth them being limited?