company buys house for relative rent-free

tax considerations

Didn't find your answer?

Hi.

A limited company purchases a house over £500k (hence ETAD) and make it available for the directors mum to live in rent-free. My question is:

Will there be a BIK to the director (accommodation benefit?)

Since not commercially let, i ssume that no expenses dedcution by the company (in line with income tax trreatement per HMRC PIM2130)?

Finally, csince companies are related, i assume that the accounting treatment is using the amortized cost method, thus recognising interest income in the debtors accounts and inteest charge in the creditor accounts.

many thanks.

 

Replies (15)

Please login or register to join the discussion.

avatar
By Anonymous.
24th Jun 2020 12:03

neanderthal wrote:

Will there be a BIK to the director (accommodation benefit?)

I'd say yes. There's definitely a benefit and seems the accommodation provisions would apply even though he isn't occupying. He could if he wanted to.

neanderthal wrote:

Since not commercially let, i ssume that no expenses dedcution by the company (in line with income tax trreatement per HMRC PIM2130)?

Discussed here.

https://www.accountingweb.co.uk/any-answers/letting-to-a-connected-person

Was the plan to avoid the 3% SDLT premium and did anyone work out if the overall cost was lower with a company purchase rather than, say, a loan to the director to make the purchase?

Thanks (0)
By ireallyshouldknowthisbut
24th Jun 2020 12:18

Well thats a pretty dim thing to do.

You pay the 3% extra SDLT anyhow , get a BIK, ETAD and saddled with with much higher taxes on sale.

What a plonker. but hey, fat fees to defuck it all!

Thanks (0)
Replying to ireallyshouldknowthisbut:
neand
By neanderthal
24th Jun 2020 12:28

hi. owners - director (h & wife) has no choice as the deposit must come from the other company they own. they dont have any personl money.

Thanks (0)
Replying to neanderthal:
avatar
By Anonymous.
24th Jun 2020 14:34

neanderthal wrote:

hi. owners - director (h & wife) has no choice as the deposit must come from the other company they own. they dont have any personl money.

Did anyone explore the possibility of the company lending the money to the director to then allow him to make the purchase personally?

How has the deposit been accounted for in the other company? Loan to the other company?

Thanks (0)
Replying to Anonymous.:
By ireallyshouldknowthisbut
24th Jun 2020 14:39

Well quite, it seems unlikely the extra taxes over the lifetime of the company would exceed the potential taxes on a loan/dividends.

Thanks (0)
Replying to ireallyshouldknowthisbut:
avatar
By whitevanman
24th Jun 2020 22:24

Company A has lent money to company B, which has then bought a house, which is let to the director's mother, rent free.
Haven't thought long and hard on this but I would be slow to rule out the possibility that S459 would apply to the arrangements.

Thanks (0)
Replying to ireallyshouldknowthisbut:
Caroline
By accountantccole
24th Jun 2020 15:37

How does that get through the filters?!

What a plonker. but hey, fat fees to defuck it all!

[/quote]

Thanks (0)
Replying to accountantccole:
RLI
By lionofludesch
24th Jun 2020 17:27

It's just part of another word. Like Scunthorpe or Arsenal.

Thanks (0)
Replying to lionofludesch:
By ireallyshouldknowthisbut
25th Jun 2020 09:40

indeed, its my wife's favorite word.

normally after I have done something round the house and we then have to pay out for a tradesman to undo what I did, and do it properly.

Thanks (1)
Replying to ireallyshouldknowthisbut:
Red Leader
By Red Leader
25th Jun 2020 11:27

ireallyshouldknowthisbut wrote:

indeed, its my wife's favorite word.

normally after I have done something round the house and we then have to pay out for a tradesman to undo what I did, and do it properly.

Proof that a parallel and identical universe exists. I am that person.
Thanks (0)
avatar
By Tax Dragon
24th Jun 2020 12:56

To answer the accommodation BIK question, all you have to do is read the first sentence of the relevant legislation, which starts at s97 ITEPA. I quote: This Chapter applies to living accommodation provided for an employee, or a member of an employee's family or household, by reason of the employment.

PIM has nothing to do with it. If the company is paying Mum's living costs, I would guess that that's allowable for the company and taxable on the director. It won't take much more rummaging around the legislation to confirm or refute that.

Thanks (1)
avatar
By Tax Dragon
24th Jun 2020 14:54

The treatment of repairs is worth a mention. I don't think they count as a cost of living - they are a cost of owning property.

Thanks (0)
avatar
By thehaggis
24th Jun 2020 20:15

It will avoid the 3% rate of SDLT.

But at the expense of the flat rate 15%. (Dwelling exceeding £500,000)

Thanks (0)
avatar
By frankfx
24th Jun 2020 23:38

It would be interesting to be presented with full picture.

Then we could wrangle an optimal outcome.

Company loaded with cash.

How best to extract that cash.
£500,000 DLA

Director obtains loan on property.

Say £200,000 to cover s.455 tax. Down the line.
Who owns house?
Capital gains on growth of house value, mitigation?
Multiple ownership may help
Part of director estate for Iht?
When wealth inside company may be protected from IHT
Also protect mum owning wealth directly, to reduce risk of care home fees.

It seems that the route tax payer has adopted may ,just may, be an expensive gesture.

But it would be good to stress test.
Here?

Thanks (0)
Replying to frankfx:
avatar
By Tax Dragon
25th Jun 2020 08:25

frankfx wrote:

It would be interesting to be presented with full picture.

Then we could wrangle an optimal outcome.

Indeed, without the full picture (which I guess must include the information needed to prepare accounts for both companies, tax returns for director and mum and lists of assets for IHT planning - by the sound of it, these last are quite short - and the plans and intentions of the individuals), it would be misguided for us to attempt to wrangle the optimal outcome.

But, if you were the OP, would you post all that information?

So, as I said yesterday on another thread, this forum cannot (no public forum can) provide such advice. Nor should it (or any) try to.

What we can do - as you and Basil do more (or at least better) than most - is identify issues that may need consideration. If then the OP thinks "blimey I hadn't thought of that, that sounds a bit involved" then they may also have the sense to call in help.

It's nicer (*) to realise that yourself, than to be told that you need to buy in advice. Better outcomes all round.

(*) No-one gets my film references, so I'll join in with a song: we're only human, after all....
[Dragon exits stage left, singing.]

(https://youtu.be/L3wKzyIN1yk)

Thanks (0)