A ltd purchased a pub and converted it into 6 flats. A ltd has a sole shareholder/director. The director has now formed B ltd. A ltd wants to grant a lease of the pub to B ltd so that Vat will be zero rated.
The cost of the pub &conversion is £500k in A ltd.There are no bank loans.
A ltd will grant a long lease at Nil premeium but at market rent of £3k pcm to B ltd.
Question 1) Does A ltd will show the pub in its balance sheet as fixed asset and pay C.tax on its rental income?
Question 2)Will there be any SDLT to pay by B ltd to A ltd ?
Question 3) B ltd will receive rent from the flats.Does it have to pay C.tax on rental income?
Question 4)The fact that A ltd and B ltd are connected .Would it cause any input vat recovery problems on the building costs?
Kind Regards
Replies (4)
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I presume they are actually leasing the flats not the pub (which no longer exists, I presume) and the lengthy term is to allow the supply to be a zero rated supply?
Re SDLT have not put it through a calculator but suspect there is a fairly chunky bill B will pay to HMRC (not to A)
Suspect may be capital goods scheme issues/implications for next ten years.
Yes, anyone with profits (presume A and B) will need to pay corporation tax on their profits. When we did this the calculated rent from B to A was computed as a discounted part of the rents to end users less costs B would receive, so both A and B made profits. You need to be very clear who is picking up repairing obligation and condition reinstatement at end of lease etc , these factors have bearing on reasonable market rent.
Given significant vat involved I would be seeking specialist help-whilst we did the lengthy inter group lease route in the 1990s (before I arrived) I would want confirmation nothing more recent has upset the approach (In effect build to let without vat loss/sale of asset)
You ought to carry out further investigations, and conclude that the director holds his shares in B Ltd as nominee for A Ltd.
If B Ltd is a subsidiary of A Ltd, there will not be any SDLT. Otherwise there might be. If there is SDLT, do not forget to claim MDR.