A new client company (four shareholders but soon to reduce to two shareholders) rents out a residential property that is owned by two of the individuals. The mortgage is in the name of the two individuals and there was a Tenancy in Common agreement that the solicitor has said can be torn up if any party doesn't want it to continue.
So the company is effectively a property management company, receiving the rent, paying a non market rent to the owner (equivalent to the mortgage interest) and accumulating the income from the property rentals.
Questions:
- Is it alright to do this? I can't think why not, as the company is basically no different from a rental agent that finds a tenant and deals with expenses etc. The difference being that instead of charging 15% commission, it is charging on a different basis.
- If so, is it alright not to charge the company market rent?
- Would a property management agreement, similar to that used by rental agencies, be sufficient to document the arrangement?
Thanks a good weekend.
Replies (5)
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So, is it a property management company or a property investment company?
What does the Declaration of Trust actually say on the matter? Its unilateral "destruction" is unlikely to be permitted.
It is very unlikely that HMRC will permit a management fee greater than ~ 15% - unless it can be demonstrated that independent agents in the area do charge more for the same services.
Even if HMRC accept some commercial argument for the arrangements, the two remaining shareholders who I suspect are the property owners (yes?) are going to be caught as connected parties and rental income will be deemed at market value which has helpfully been set by the company with a third party.