Share this content

Company Asset or not

Building Extension

Didn't find your answer?

Company has spent around £100.000 on building an extension, but does not own the property, it is owned by the 2 directors.

Since there is no legal documentation to support this, can I show as an asset in the balance sheet? Otherwise where do I show this

in the company accounts?  Maybe legal advise first? What happens on disposal?

 

Replies (11)

Please login or register to join the discussion.

By johngroganjga
02nd Mar 2021 16:36

Does the company use the property as it was before the extension and/or the extension itself?

Thanks (0)
Replying to johngroganjga:
avatar
By TonyUK
02nd Mar 2021 17:29

Yes it is a school extension

Thanks (0)
avatar
By Tax Dragon
02nd Mar 2021 16:49

Isn't your starting point what the directors say? Did they intend the company to own part of their (I guess) home?

Thanks (0)
avatar
By Paul Crowley
02nd Mar 2021 17:18

Consider also whether there is a problem in that the company may have created a tax liability on the directors.
Not asked but relevant to the question

Thanks (0)
avatar
By michaelblake
02nd Mar 2021 18:58

As far as I understand it under UK land law, and without a legal document recording anything to the contrary, the value of the improvements would belong to the directors as the owners of the land in which the extension sits. The company has therefore, on the face of it, enriched the directors as the owners of the freehold by the value of the improvements. As others have noted this could lead to unplanned tax liabilities. I would suggest that the position should be rectified by asking solicitors experienced in land law to prepare the appropriate documents recording the fact that the company paid for the improvements and owns the value of them.

Thanks (0)
By johngroganjga
02nd Mar 2021 20:21

Leaving aside any tax consequences of the landlords being the company’s shareholders, the accounting treatment of the costs in the company’s books is to capitalise them as “improvements to landlords’ premises” and depreciate them over the minimum period the company expects to remain in occupation.

Thanks (0)
Replying to johngroganjga:
avatar
By TonyUK
02nd Mar 2021 21:26

Are you sure about writing it down, I thought building did not attract depreciation.
Can a capital allowance be claimed or not. I assume not. So the plan is too capitalise £100, 000 spent under buildings in balance sheet. and write down say over 20 years.
Then get a solicitor experienced in land law to prepare the appropriate documents as Michael advised.

Many thanks

Thanks (0)
Replying to TonyUK:
By johngroganjga
03rd Mar 2021 06:07

You are thinking about investment properties. All other buildings must be depreciated.

Thanks (0)
Replying to TonyUK:
By johngroganjga
03rd Mar 2021 07:44

TonyUK wrote:

Then get a solicitor experienced in land law to prepare the appropriate documents as Michael advised.

If they are going to transfer ownership of the extension to the company, the depreciation period becomes the useful life of the building.

Thanks (0)
All Paul Accountants in Leeds
By paulinleeds
03rd Mar 2021 10:46

(Economic) substance over (legal) form.

Forget the legal owner of the land and property and look at the economic substance of the transaction.

Will benefits accrue to the company through the future use of the expenditure. If yes, capitalise and amortise.

Thanks (1)
Maytuna
By DJKL
03rd Mar 2021 10:54

Is there a lease? Could this be a premium?

Thanks (0)
Share this content