Holiday Letting income in company name

Holiday Letting income in company name

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I have a client (small company 1 director/shareholder). He has bought a property in his own name with his own funds. The company has spent £150,000 renovating the property and it is now let as a holiday let. It had income last year of £45,000 which went into the company bank account. There is a minute of the company stating that the shareholders lease the property at no rent to the company for 5 years and that the company meets all the renovation costs and keeps all receipts on lettings during this period. If this is valid there is no income personally and the rental income is offset by other costs in the company resulting in no company profit either. My question is will this minute stand up in discussion with HMRC. There is a commercial rationale as after 5 years the increase in value funded by the company will result in a more valuable asset for the director. Also for the company all things being equal it will make a profit of approximately £30,000 over the 5 year lease. I need to advise the client as his SA return needs to be completed showing either nil holiday rental income or something else. 
Your thoughts would be appreciated. 

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By duncanedwards
17th Jan 2015 14:14

Not sure ...

Not sure but the bigger issue might be why "the rental income is offset by other costs in the company resulting in no company profit either".

Why would the company spend £150k to generate no profit?

 

I think you need to sit down and work through the alleged "business" rationale and see who is getting what out of the "deal" and who is carrying the risk.  Either it stands up to some basic scrutiny or it doesn't.  Then you can worry about the detail.

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