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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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.
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"
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.
Leasehold property
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.
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.
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
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.
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