Taxation of Long lease of 25 years

A ltd wants to Grant a lease of 25 years of its property to B ltd. what is tax implications?

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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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By DJKL
28th Nov 2016 14:08

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)

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Portia profile image
By Portia Nina Levin
28th Nov 2016 14:37

Who owns B Ltd? A Ltd or a maladvised complete [***]?

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Replying to Portia Nina Levin:
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By Harry04
28th Nov 2016 14:43

Hi
The same shareholder/director owns B ltd.

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By Portia Nina Levin
28th Nov 2016 15:50

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.

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