Director - New Office in his own house

Director - New Office in his own house

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CLient runs a successful consulting business through his Limited Company.

He (genuinely) is looking tgo convert his loft space into a substantial office area.

Could we:

1) split title within his PPR and sell this to his company.  Very low value.  Would be covered by OMR in any case. 

2) Company contracts with builder to convert at cost of c£50k + vat.

3) Avoid any BIK entries.

4) Company can reciver CA' s (probably minimal).

4) Company will pay the cost, rather than him.  If he does pay then it will be CR to DLA.

5)  Accounts will show leasehold improvements.

6) Any future sale of "house" will need to be apportioned into his sale and the company sale.

Granted, it is very clumsy, but he came to us because his pal down the pub had done something similar and "he got some tax back"....

Replies (12)

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By Steve Holloway
13th Jan 2012 11:22

It could be done as you describe .....

but that doesn't mean it should be! If he was my client I would tell him to spend more time lucratively consulting and less time in the pub.

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By BigBadWolf
13th Jan 2012 11:40

why not just rent

You could!

Why not just rent out the office space to the company under a licence agreement? or even simpler put through a business use of home charge - It seems like a hell of a lot of trouble to go to "to get some tax back"

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By Steve Kesby
13th Jan 2012 13:20

Yes

I don't see that avoiding the tax on extracting £60k from the company to pay for the work and recovering £10k of VAT isn't worth a bit of effort.

All seems to work to me. 3 is a problem if the company doesn't have a legal interest, I think (so there must be a leashold interest, rather than mere licence to occupy).

Other issues are:

business rates, you will be creating a separate business "heradiment", but SBRR is likelt to apply.SDLT will be due on the grant of the lease, but I imaging that premium/rent will be sufficiently low to be nil rate.there will be also be insurance ramifications, I'd imagine.not to mention the consequences on disposal, as you say.

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By blok
13th Jan 2012 14:12

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thanks,

I should have said that 5) should read that the company will debit the asset to land & buildings rather than leashold improvements as this is a disposal and acquisition of freehold after all.

I would be keen to avoid the grant of  the lease because that would appear to just defer the BIK issue.  (i.e. what happens to the value of the improvements after the lease ends and the improved office space reverts back to director in his capacity as homeowner)?

I am not overly keen on complications like this because it inly normally only for short term gain....but the amount is not incidental and the construction work is genuine.  and the vat is an issue as well...

The company turnover is c£250k with very little associated costs. 

I am unsure how or if legal title to a house could be split but I suppose anything is possible.

I think I will give the idea the green light from a tax perspective but insist he thrash out the detail with his lawyer.

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By Tonykelly
13th Jan 2012 14:31

Leasehold property

blok wrote:

thanks,

I should have said that 5) should read that the company will debit the asset to land & buildings rather than leashold improvements as this is a disposal and acquisition of freehold after all.

regarding point no. 5, the company is not purchasing freehold property, as you are looking at a loft conversion.

It will be leasehold property.

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By Steve Kesby
13th Jan 2012 14:37

I agree with Tony

You can't sell a freehold interest in part of a building.  I don't think you can do commonhold either. The solicitor will know better though.

On the BIK on lease reversion point, would it not be market value at the time it reverts? You'd have to compare what the house would be worth without the conversion, compared with what it would be worth with it, I'd have thought. The difference may not be significant.

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By edward33
13th Jan 2012 14:54

Conversion and VAT

a few things come to mind

 

1 Can you reclaim VAT on Roof Space Conversion?

2 Is it a seperate asset if there is no way in except through house.

3 Can you extract funds from company to fund extension how does DCA sit at the moment.

4 Would complicated structure affect possible future sale of house or company

5 £50,000 seems very high. how many sq ft? 

Is renting Office space to Co not way to go as cheapest way of extracting funds

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Replying to raybackler:
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By blok
13th Jan 2012 15:13

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edward33 wrote:

a few things come to mind

 

1 Can you reclaim VAT on Roof Space Conversion?

2 Is it a seperate asset if there is no way in except through house.

3 Can you extract funds from company to fund extension how does DCA sit at the moment.

4 Would complicated structure affect possible future sale of house or company

5 £50,000 seems very high. how many sq ft? 

Is renting Office space to Co not way to go as cheapest way of extracting funds

 

1) I dont see any issues with vat recovery.

2) there will be a communal enterance,  however I am unsure about ability to split title.

3) DLA is fine, no company funds are being extracted by director.  they are being spent.

4) might make future sale more protracted but I cant see it being a key issue

5)  price is the price.  HIgh spec design.  Will include specific office design workspace and meeting space.

 

The rental option is fine but I dont think it is cheapest way of extracting funds.  OK it avoids NIC but thats about it.

 

The running costs of that part of the house can be apportioned and paid for by the company.

 

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By blok
13th Jan 2012 15:01

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thanks:

are you saying that it is not possible to split title of my house (if it was big enough) and sell the newly created part separately?

I know that in Scotland the laws may be very different to those you have in England.

This is exactly why I am not getting involved in this part of the discussions.  I will let the Lawyer decide.

 

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By thisistibi
13th Jan 2012 15:19

Might not help

It might not help, but when flat owners own the freehold, they tend to all own a leasehold interest in their flats plus they share the freehold interest through their interest in an SPV.  That is called "share of freehold".

If it was possible to own a share of freehold outright then I don't see why flat owners wouldn't just do that instead.

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By Steve Kesby
13th Jan 2012 15:57

Indeed

The position may well be different under Scots law.

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paddle steamer
By DJKL
11th Feb 2014 22:19

Scotland

You can certainly feu a part of a property/ building in Scotland, the tricky bit will be dealing with servitude rights, rights of access, burdens etc.

As a distinct property, on an upper floor, you might have building control issues and fire access etc issues. You may have planning issues creating commercial property from part of an existing residential property.

What would happen if attic floor was transferred by disposition to say a company and that entity ended up being liquidated , how would access to the property be gained outwith entry through the lower property etc

There are a lot of considerations beyond the realms of taxation.

DJKL

Edinburgh

 

 

 

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