Director charging rent to company

Director charging his company rent on the flat he owns where he lives and works Monday to Friday

Didn't find your answer?

This is a pretty standard scenario: director owns flat that he uses to run his company from and charges the company rent. The company gets CT relief and he reports the income on his tax return, which ideally is offset in full by apportioned expenses. 

However, the monthly rent charged to the company seems to be much higher (by almost 300%) than when it used to be when it was let out on a commercial basis and the director resides there only from Monday to Friday.

My initial issue with this set-up is a potential BIK. I know that employees would not be charged on accommodation paid for them by the company while they are working away, but does the same apply to directors who in addition own that property?

Would any of you be able to advise if there is some case law that dealt with this previously? Or legislation? 

I may have been too concise, so apologies if more information is needed and please ask.

Thank you.

Replies (91)

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By David Ex
09th Aug 2023 17:07

Where to begin?!

Is this a long or short term arrangement?

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Replying to David Ex:
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By MinimalDamage
09th Aug 2023 17:16

I do not know, but it may be temporary, especially depending on the tax implications. I don't want to give too much personal detail, but my understanding is that he had to leave the home he used to live in, so this saves him having to stay in hotels.

As far as I know, no formal agreement is in place, either.

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Replying to MinimalDamage:
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By David Ex
09th Aug 2023 18:33

MinimalDamage wrote:

… my understanding is that he had to leave the home he used to live in, so this saves him having to stay in hotels.

So sounds like the need to be living there is personal rather than business in any event. Or put another way, that is his home.

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Replying to David Ex:
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By MinimalDamage
09th Aug 2023 19:20

And would you say that is true even if he lives somewhere else on the weekends?

So where he used to live was local to his job. And now he commutes.

I suppose an important question is what was already asked: where he lives on the weekends and whether that can be considered his main home, for example if he stays in hotels and uses the high rent to fund that then that would definitely be a bik.

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Replying to MinimalDamage:
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By David Ex
09th Aug 2023 19:38

MinimalDamage wrote:

And would you say that is true even if he lives somewhere else on the weekends?

Where does he tell the DVLA, his car insurers, Companies House and his bank he lives?

Where do HMRC believe he lives, come to that?

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Replying to David Ex:
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By MinimalDamage
09th Aug 2023 20:21

Yes, all of these would help in determining this.

Basically, this has gone on for a year and I’ve just started dealing with this client so there is much more information that I need to get the full picture.

However, over the past year no bik has been reported on the basis that there will not be a benefit in kind provided that the rent charged to the company is less than the market rent where the director commutes to work that is his own property, which does not seem to be the case anyway.

So I am curious to know what the law says.

I just want to make sure that I have covered this before I say to him: so there was no bik on this before but now there is.

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Replying to MinimalDamage:
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By David Ex
09th Aug 2023 20:39

MinimalDamage wrote:

However, over the past year no bik has been reported on the basis that there will not be a benefit in kind provided that the rent charged to the company is less than the market rent where the director commutes to work that is his own property, which does not seem to be the case anyway.

Not sure understand that. Think the key questions are those here:

https://www.gov.uk/guidance/ordinary-commuting-and-private-travel-490-ch...

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Replying to David Ex:
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By MinimalDamage
09th Aug 2023 20:47

Thank you, I’m not sure I understand this myself. I’ll have a look and see if I can find anything related.

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Replying to MinimalDamage:
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By MinimalDamage
09th Aug 2023 20:56

Just to clarify, I am still referring to a potential bik on living accommodation.

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Replying to MinimalDamage:
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By Eighties Kid
09th Aug 2023 21:19

Why not PAYE?

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Replying to Eighties Kid:
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By MinimalDamage
09th Aug 2023 21:35

Not sure I follow?

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Replying to MinimalDamage:
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By David Ex
09th Aug 2023 22:11

MinimalDamage wrote:

Thank you, I’m not sure I understand this myself. I’ll have a look and see if I can find anything related.

Start at para 3.10 and that should shed some significant light but obviously the facts of your client’s situation need to be established.

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RLI
By lionofludesch
09th Aug 2023 17:18

I'd begin by asking the director if he'd mind you debating his valuation of the rent and any potential bik with HMRC.

Obviously, there'd never be such a debate as HMRC would ever reply to your letter.

Or you could just ask him if he has had the rent assessed by a properly qualified valuer.

Or even ask him why the rent has rocketed. And whether he thinks you were born yesterday. Who knows ? He may have convincing answers.

Where does he live at weekends ? In another property he owns ?

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Replying to lionofludesch:
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By MinimalDamage
09th Aug 2023 17:31

I like your cynical response.

That is the question I have also asked myself, but I have yet to confirm.

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Replying to MinimalDamage:
RLI
By lionofludesch
09th Aug 2023 18:19

MinimalDamage wrote:

I like your cynical response.

That is the question I have also asked myself, but I have yet to confirm.

Not so much cynical. Folk often back down when challenged. They're happy to shoot their mouth off in your office but when they're in the tax office, they become less - ermmm - sure of their argument somehow.

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RLI
By lionofludesch
09th Aug 2023 20:59

At best, it's a permanent workplace, is it not?

Ordinary commuting.

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By Bobbo
10th Aug 2023 10:32

What, precisely, is the company renting from the director?

- Is the company renting the entire flat, and effectively providing the director with their own flat as living accommodation?

- Is the company renting just the spare bedroom/office during business hours?

Given your comments about the rent being far in excess of when it was "let out on a commercial basis" (does this refer to the entire flat under an AST?), do you have an issue of the rent paid by the company not being deductible in full as not being wholly and exclusively for the purposes of the trade?

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Replying to Bobbo:
By Ruddles
10th Aug 2023 11:26

Agreed. Two separate issues here:

Risk of non-deductibility of the excess rents.

Accommodation BIK charge, calculated under usual procedures.

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By tom123
10th Aug 2023 10:40

Sounds like he just wants to expense his personal life. Just because something may be cheaper than an "allowable" solution like hotels, doesn't make it claimable. Thinking of the Tim Healy case.

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By Justin Bryant
10th Aug 2023 13:30

I'm not sure how BIK is relevant (that's only relevant if the company owns the property to the extent it allows him to use it cheap/rent-free).

As mentioned above, assuming this is not covering temporary workplace expenses, this looks like simple s62 PAYE/NIC CT deductible cash earnings to me.

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Replying to Justin Bryant:
By Ruddles
10th Aug 2023 13:39

Justin Bryant wrote:
I'm not sure how BIK is relevant (that's only relevant if the company owns the property to the extent it allows him to use it cheap/rent-free).

That displays a remarkable lack of understanding of how the accommodation BIK rules work, Justin.
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Replying to Ruddles:
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By Justin Bryant
10th Aug 2023 14:41

You don't have a Scooby-Doo about anything much. There is no EE NIC on BIKs (though of course income tax and ER NIC is payable). These ER cash rent payments would be a pretty easy EE NIC avoidance scheme if they were a mere BIK as you seem to think (the main reason for the BIK rules in the 1st place is to tax non-cash benefits such as rent-free accommodation provided by the employer - that's what the "IK" bit stands for).

We've also seen recently that you know next to nothing about LRs. I could go on of course, but you're a troll and life is too short.

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Replying to Justin Bryant:
By Ruddles
10th Aug 2023 15:03

What on earth are you wittering on about? No-one mentioned NIC (E'ee or E'er).

I was taking exception to your comment that an accommodation BIK arises only to the extent that a company owns a property and provides cheap or rent-free accommodation to the employee. Which is utter garbage.

Your reference to the cash payments indicates that you have, as usual, grasped the wrong end of the stick, just as you did in the discussions about the transferability of debt. (In fact, I'd say that you failed to grasp the stick at all.) Where did I suggest that the cash payments would be treated as a BIK? Hint - I didn't.

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Replying to Ruddles:
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By Justin Bryant
10th Aug 2023 15:05

Everyone (who isn't a complete idiot) can see that as pure trolling subterfuge (just like your response to my recent obvious paraphrasing of your pro-LC comments here). It's your highly boring and predictable trolling MO.

Either that, or you're someone who gets very angry indeed in being proved (constantly) wrong, or (more likely) both.

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Replying to Justin Bryant:
By Ruddles
10th Aug 2023 15:09

Justin Bryant wrote:

Everyone (who isn't a complete idiot) can see that as pure trolling subterfuge.

For 'paraphrasing' read 'lying'.

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Replying to Justin Bryant:
By Ruddles
10th Aug 2023 15:24

Your comments say so much more about your own character than that of your targets.

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Replying to Ruddles:
By Ruddles
10th Aug 2023 15:41

Ruddles wrote:

That displays a remarkable lack of understanding of how the accommodation BIK rules work, Justin.

Apparently that is too inflammatory, so let me re-phrase:

That is not how I believe the accommodation BIK rules work, Justin. There is no requirement for the company to own the property and there is no need for the accommodation to be provided cheap or rent-free for a BIK to arise.

There, is that better?

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Replying to Ruddles:
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By Justin Bryant
10th Aug 2023 15:43

Not really, but never mind (it's all explained (properly) in HMRC's manual).

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Replying to Justin Bryant:
By Ruddles
10th Aug 2023 17:02

Indeed. I was simply trying to be helpful in case someone stumbled across this thread following a search on accommodation BIKs and thought that that's only relevant if the company owns the property to the extent it allows him to use it cheap/rent-free is correct.

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Replying to Justin Bryant:
Stepurhan
By stepurhan
08th Sep 2023 13:21

Justin Bryant wrote:

Not really, but never mind (it's all explained (properly) in HMRC's manual).

Care to tell us how it is explained "properly" in HMRC's manuals and provide a link to same?

Not the HMRC's manuals have the force of law, but it would least be a start if you really think you are correct. Simply being abusive, as you so often are, does not do wonders for your credibility.

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By Tax Dragon
10th Aug 2023 16:37

What stops the money simply being taxed as money (ie as remuneration)?

I realise Justin has already raised this point, but it seems to have become lost in the subsequent exchanges, so I am reraising it.

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Replying to Tax Dragon:
By Ruddles
10th Aug 2023 16:57

What stops the money simply being taxed as what it is, ie rent?

Possible of course to take a P A Holdings approach and re-classify it but I don’t really think HMRC would be up for the fight, do you?

I think the other issues are more worthy of discussion - can the company claim a full deduction and is there an accommodation BIK?

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Replying to Ruddles:
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By Tax Dragon
10th Aug 2023 17:09

Any amount in excess of market rent? (And if there's such an excess - then is any of it rent at all?)

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Replying to Tax Dragon:
By Ruddles
10th Aug 2023 18:26

Why not? The rent that I charge my other half’s company is probably in excess of market rates. It needs to be to cover the mortgage payments. That doesn’t make it not rent any more than excessive remuneration is not remuneration.

I do agree that the first question is indeed whether the company is actually renting the property. And only if yes then ask why.

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Replying to Ruddles:
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By Tax Dragon
10th Aug 2023 19:39

Ruddles wrote:

Why not?

Why is the excess being paid? For use of property... or due to control of what the company pays for (and how much)... in short, by reason of the directorship? Same point made with reference to legislation: to me s62 is inclusive [eg "any... other profit"]; s266 not so.

But I'm merely thinking aloud. As I will remind Hugo later on the page. These are questions as much as - no, more than - they are answers or assertions.

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Replying to Tax Dragon:
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By Hugo Fair
10th Aug 2023 16:58

One of those threads which I was keeping out of as the mud got churned up to the extent of obliterating any clarity - but according to OP ...

* "director owns flat .. and charges the company rent .. and he reports the income on his tax return" - so from where come all the questions about BiK vs earnings (it's his flat & earnings - or are we meant to read between the lines about the 'benefit' of the company then re-providing the premises back to the owner as an employee)?

* "I know that employees would not be charged on accommodation paid for them by the company while they are working away" - which is a blunt statement that is dependent on a lot of (unprovided) assumptions ... but I'd start with "working away" (as in I'm not away if I reside in premises where I already live)?

BUT my biggest 'issue' is best laid out as an example paraphrasing facts given:
- flat used to be let out on a commercial basis at, say £x pm
- presumably 'commercial' means it was intended to generate a profit after costs
- monthly rent charged to the company is nearly £3x pm
- and yet client expects the income .. to be offset in full by apportioned expenses
So, irrespective of who's paying what to whom (and large assumption that company gets CT relief), what on earth happened to the costs of running the flat?

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Replying to Hugo Fair:
By Ruddles
10th Aug 2023 17:06

First question to be answered is - why is the company renting the property? Everything else should follow from that.

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Replying to Ruddles:
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By Tax Dragon
10th Aug 2023 17:14

No, first question is - is the company renting the property? (What is actually happening?)

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Replying to Tax Dragon:
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By Hugo Fair
10th Aug 2023 17:37

So we already have more 'first questions' than answers ... now there's unusual! :=)

But I agree ... facts, assumptions and objectives have all become interwoven to the detriment of any clarity of what is happening.

Or as the Crazy World of Arthur Brown put it 55 years ago (so probably not to your taste) .. https://www.youtube.com/watch?v=9zPghKQPA3Q

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Replying to Hugo Fair:
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By Tax Dragon
10th Aug 2023 20:35

I let the clip run (I like a bit of screaming... gives me something to fight back with against my 2-yo) - it (not me) followed up with

https://youtu.be/u5kxPBz1dR8

AI developed a sense of humour?

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Replying to Tax Dragon:
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By Hugo Fair
10th Aug 2023 21:22

Hmm, if only ... I fear that it may have blown a virtual fuse when trying to meld you a profile based on whatever you normally view with a topping of dear old Arthur - unless of course it was spot on by merely reflecting your frequent trawls through the NTNOCN annals?

Mind you my humour ranges far and wide without always meeting with approval - so who am I to judge a poor Google algorithm! (signed, Gerald the Gorilla)

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Replying to Hugo Fair:
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By Tax Dragon
10th Aug 2023 17:12

Merely thinking aloud, Hugo.

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Replying to Tax Dragon:
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By Eighties Kid
10th Aug 2023 17:39

Tax Dragon wrote:

What stops the money simply being taxed as money (ie as remuneration)?

I realise Justin has already raised this point, but it seems to have become lost in the subsequent exchanges, so I am reraising it.

I raised it last night too.

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By DKB-Sheffield
10th Aug 2023 22:08

I've stayed out of this and now wish I'd never read it at all. Bobbo's question of what - exactly - is being rented out is about where my thought process starts and ends.

That said, I can't work out whether this is some sort of genius piece of tax-planning, or a 'scheme' that is doomed to failure (at significant cost).

I am, however, almost certain that MinimalDamage's client's next proposal will be that, somewhere within this intricate web, they are of the belief that PRR will be available on any gain, that it will be eligible for BADR, and that BPR will apply to this 'business asset'. Clients who think they've got a cunning plan... often think they've also found a way to 'sew up' every potential tax liability!

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By taxdigital
12th Aug 2023 09:15

This is a very common extraction strategy, to take funds out of the company without having to pay NI.

If there is a formal rental agreement in place:

• Corporation tax – the rent paid in excess of the market rate fails the ‘wholly’ (s.54) test and should be added back for corporation tax purposes.

• Income tax – the rental income received by the director is property income (‘generating income from land – ITTOIA 2005) and should be taxed accordingly.

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Replying to taxdigital:
By Ruddles
12th Aug 2023 11:41

taxdigital wrote:

This is a very common extraction strategy, to take funds out of the company without having to pay NI.

If there is a formal rental agreement in place:

• Corporation tax – the rent paid in excess of the market rate fails the ‘wholly’ (s.54) test and should be added back for corporation tax purposes.

• Income tax – the rental income received by the director is property income (‘generating income from land – ITTOIA 2005) and should be taxed accordingly.


And what about the (possible) third point - accommodation BIK?
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Replying to Ruddles:
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By taxdigital
12th Aug 2023 11:55

Ruddles wrote:

And what about the (possible) third point - accommodation BIK?

In order for the benefit code to apply the employer should have provided a 'benefit' to the director 'by reason of his office' as the director. Do you think we have enough information in the OP to conclude that there indeed is a benefit provided to the director?

Edit - I won't be posting further up until next week.

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Replying to taxdigital:
By Ruddles
12th Aug 2023 12:13

If I thought that we had enough information I would not have added the (possible)

But if not provided by reason of his employment/directorship then what?

In other words if the accommodation were provided to another employee I assume a BIK would have arisen (subject to exclusions). Should it make any difference that the beneficiary is the same person that is renting the property to the company?

Of course, if a BIK does arise it makes the arrangements somewhat futile.

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Replying to taxdigital:
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By Tax Dragon
12th Aug 2023 14:32

taxdigital wrote:

Income tax – the rental income received by the director is property income (‘generating income from land – ITTOIA 2005) and should be taxed accordingly.

Is it? Should it? What, taking a realistic view, is being used - exploited - to generate the income?

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Replying to Tax Dragon:
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By Hugo Fair
12th Aug 2023 15:03

Not sure why I'm poking my nose back into this mess ... other than I'm losing track of the veiled hints being issued by everyone (and failing to work out their meaning).

Opening status: property is owned by D(ir).

Transaction 1: D rents his property - although we aren't told which bits or whether with any restrictions - to C(o)
- Depending on what I've missed, that surely is income in the hands of D and taxable on him?
- The payment may or may not be 'allowed' under CT for C, subject to the usual rules (including whether the amount is commensurate with MV as well as the degree to which it is necessary to the operation of C's business).

Transaction 2: C provides the same property (presumably rent-free) to D - without us being told anything about the basis/justification for that provision.
- If it is claimed to be provided by reason of either employment or of office, then a 'better offer' alternative should be equally valid (and would save C some money).
- If it is provided for any other reason (or without any specified reason), then the possibility of a BiK arises - subject to all the usual rules.

It all seems fairly straight forward to me (or would be if, as usual, all the missing facts were known) ... so what are the big mysteries that are eluding me?

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