I've recently taken on a new client who operates a limited company renting a commercial property.
The property is owned by him and two other siblings who aren't connected to the company and no rent is paid to them by the ltd company for use of the property. Further, there isn't a formal rental agreement between the siblings and the company.
Rental income is from an unconnected third party.
In the first year of trading, a substantial amount of money has been spent on improvements to the property through the company - A/C units, partitioning into offices and decoration - alongside regular revenue expenditure.
Three questions spring immediately to mind:
- Is this classed as property income even though the company has no formal interest in the property?
- How would you treat the capital expenditure given there is no lease in place?
- Is there a tax implication in sustantially improving the property with no lease agreement in place?
It's not a position I would have started from, ha ha!