Lease own BTL to limited company to then sublet

Can I lease my BTL property to my limited company to then sublet it?

Didn't find your answer?

Hi there, 

I've seen a few questions in a very similar vain to this but they were from 5+ years ago now so wanted to ask again.

 

I am closing on a BTL property in the next couple of weeks and basically want to know if I can lease that property out to either my existing limited company (used in Entertainment sector) or create a new limited company. The limited company would then sublet it to tenant/tenants , mainly for personal liability protection in case anything terrible were to happen, God forbid. I then take a salary and dividends as usual. Sublet either for short term lets (serviced accommodation) or student HMO mainly. 

 

I'd appreciate any insight on the matter. I've already posed the question to my accountant and awaiting his response but he specializes in Entertainment so I don't know if this would be something quite unorthodox or straight forward for someone in the arts field. 

 

Thank you in advance and I hope that all makes sense 

Replies (29)

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By David Ex
30th Mar 2023 13:53

Crissiea wrote:

I'd appreciate any insight on the matter. I've already posed the question to my accountant and awaiting his response but he specializes in Entertainment so I don't know if this would be something quite unorthodox or straight forward for someone in the arts field. 

Lots of legal and tax issues there. If your existing accountant can’t answer, you’ll need to appoint another adviser. You’re asking for relatively complex technical advice on a number of possible scenarios and that doesn’t come free, I’m afraid.

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By Paul Crowley
30th Mar 2023 13:54

If you are the owner, then who is at fault if the roof falls in and kills a tenant?

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Replying to Paul Crowley:
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By Crissiea
30th Mar 2023 14:11

I'm thinking as the personal owner I'd get building insurance. But as the tenant would rent it from the limited company, the limited company would get insurance for tenancies. This is my thinking at least

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Replying to Crissiea:
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By Paul Crowley
30th Mar 2023 14:15

What exact risk are you looking to avoid by using the company?
Remember that corporation tax goes up if profits exceed £50,000 from 1st April 2023.
And an associated company cuts that to £25,000

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Replying to Paul Crowley:
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By Crissiea
30th Mar 2023 14:30

I think personal liability for accidents or anything. But I also have seen so many companies renting a property off private landlords and then subletting it via airbnb or similar. I think one of the reasons this might be a good Avenue for me as well is that my mortgage is BTL not a holiday home mortgage

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Replying to Crissiea:
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By paul.benny
30th Mar 2023 17:57

It's not obvious to me what insurable risks are avoided by inserting a company between freeholder and occupier.

And insertion of a company to conceal the change from BTL to holiday let may not go down well with your lender.

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
31st Mar 2023 12:01

Paul Crowley wrote:

If you are the owner, then who is at fault if the roof falls in and kills a tenant?

The roofer!

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VAT
By Jason Croke
30th Mar 2023 13:56

Don't forget the 3% SDLT surcharge for acquiring a BTL into a corporate entity.

Your Accountant should be able to answer this question, complicated but fairly bread and butter for most Accountants, just because they may specialise in Entertainment does not mean that they don't know anything about Accounting and tax in general.

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Replying to Jason Croke:
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By Paul Crowley
30th Mar 2023 14:02

I think OP was buying personally then intent on letting to a company that lets to the tennant.

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Replying to Paul Crowley:
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By Crissiea
30th Mar 2023 14:14

Yes. Sorry if that was unclear. You're correct, I own the property and pay taxes on it accordingly. I then lease out the house to limited company and they pay market rent. And then the limited company sublets it and receives income from tenants. I then take salary and dividends from limited company

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Replying to Crissiea:
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By Hugo Fair
30th Mar 2023 15:15

"I then lease out the house to limited company and they pay market rent.
And then the limited company sublets it and receives income from tenants.
I then take salary and dividends from limited company."

If limited company is truly paying market rent, then how will it make a profit from sub-letting (from which to pay your 'salary and dividends')?
Even if short-term sub-lets are at a higher daily rate, the likelihood is that they won't be in place for 365 days p.a. - so company income stream is at least 'risky'.

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Replying to Paul Crowley:
VAT
By Jason Croke
30th Mar 2023 14:17

Paul Crowley wrote:

I think OP was buying personally then intent on letting to a company that lets to the tenant.


My bad, 3% SDLT surcharge still applies albeit for a different reason.
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By Leywood
30th Mar 2023 14:14

[quote=Crissiea]

I've already posed the question to my accountant and awaiting his response . 

Have patience then.

But disrespectful to be asking others unless you tel him so he can stop wasting his time.

Any Accountant should be able to deal with this query, whether they practice in a niche market or not, but if you do want a second opinion you need to engage and pay someone else.

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Replying to Leywood:
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By paulwakefield1
31st Mar 2023 09:22

Ummm. I couldn't. :-)

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By JCresswellTax
30th Mar 2023 14:16

Could maybe be possible, but as you are connected with the company, you would have to lease to newco at market rent, so probably no point in doing it, from a tax point of view anyway.

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Replying to JCresswellTax:
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By Justin Bryant
30th Mar 2023 19:42

That's wrong re income tax. Ignoring CGT and IHT issues, there's potentially an SDLT MV rule, but that is unlikely to be in point unless there are many multiple peppercorn short leases (arguably linked transactions) or a long peppercorn lease.

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Replying to Justin Bryant:
By Ruddles
30th Mar 2023 19:53

It is wrong in that there is no obligation to charge a market rate for the rent. But it is correct in that there could be income tax implications if the rent charged is less than market rate.

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Replying to Ruddles:
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By Justin Bryant
31st Mar 2023 08:52

No sh*t (re limiting expenses and why not just simply say that with a helpful HMRC link instead of being deliberately cryptic? This seems to be your constant annoying MO here in trying to look clever (and it backfiring) and catch people out rather than simply being helpful). Also, to borrow your favourite word, it should be obvious there's no deemed MV rent rule for IT, otherwise people would have to charge their friends & relatives full MV rent.

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Replying to Justin Bryant:
By Ruddles
31st Mar 2023 09:41

Just giving you a taste of your own medicine, Justin. Far too often in the past you have made some snarky comment in an attempt to correct or belittle someone without providing any authoritative backup.

BTW , the potential income tax implications extend beyond restriction of expenses. But you already knew that, so no need to explain.

As for being obvious, it was pretty obvious to me that the previous poster was making the point that market rent would need to be charged to avoid or limit tax (including income tax) problems. So you were in fact wrong to say that she was wrong.

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By I'msorryIhaven'taclue
30th Mar 2023 18:01

"...and basically want to know if I can lease that property out to either my existing limited company (used in Entertainment sector)"

If the Op's existing company is VAT registered, might there be some reclaimable VAT inputs for (otherwise exempt) property expenses under the partial exemption de minimis rules?

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Replying to I'msorryIhaven'taclue:
paddle steamer
By DJKL
30th Mar 2023 20:15

Conversely, doing AirBnB through a vat reg company likely slashes income as vat needs accounted for and paid on this income, this is not likely an issue if income in own name (unless total AirBnB income forces registration or already individually registered)

https://www.gov.uk/guidance/hotels-holiday-accommodation-and-vat-notice-...

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Replying to DJKL:
VAT
By Jason Croke
30th Mar 2023 20:47

The Airbnb trick is where you own a property and rent it to a connected entity which in turn sublets to another entity which does the Airbnb trade.

This then brings the holiday let into TOMS, as the trading entity buys in the accommodation from the associated company and buys in cleaning services from someone else and this can be seen as a TOMS supply, you only declare VAT on your profit, and you control the profit as you ultimately own the property and can set the price of rent and the rent of the sublet.

Doesn't work so well for BTL/long lets. Takes a bit of setting up (leases, etc) but then works a treat.
https://www.accountingweb.co.uk/any-answers/furnished-holiday-lets-vat

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Replying to Jason Croke:
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By Crissiea
30th Mar 2023 20:58

Thank you, I think that's exactly what I want to do. Because so many companies offer to give guaranteed rent and then they in turn sublet it via airbnb and similar outlets.

The difference is that I want to rent it out to my own company, whether it be my existing company or a new one and then sublet it from there for short lets.

Please excuse my naivety, but what is TOMS?

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Replying to Crissiea:
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By Hugo Fair
30th Mar 2023 21:33

If your existing accountant is unaware of TOMS then you need to appoint a different accountant (at least for your proposed business venture - and before making any other decisions).

If on the other hand they are cognisant of this and related aspects/options, then I'm sure they'll be happy to explain to you - and the results will be more fruitful than thrashing around in the deep end as you are currently doing.

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Replying to Hugo Fair:
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By Crissiea
30th Mar 2023 21:42

Thank you for your help. I'll wait to hear what my accountant says. I've only just switched to their firm so I'm new with them but hopefully they can help me out. Thanks for your time!

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Replying to Crissiea:
paddle steamer
By DJKL
31st Mar 2023 00:21

Not sure I would want to be adding TOMS to my vat reporting for my company (presuming it is already VAT registered), seems to me you may be adding vat complexity for very limited tax benefits and of course more complexity tends to lead to bigger accountancy fees and of course if profitable in the company you still lose vat on that profit.

You of course also possibly benefit if you later sell a FHL from BADR, interposing the company (which does not of course own the property and a company anyway does not benefit from BADR, only it shares may) seems to lose this future advantage.

All accountants have differing views, and their crystal balls to divine the future are not infallible, but my initial view, on balance, is that the thought of trapping the profits within a company shell, with the additional costs if wish to extract these to spend personally in future, the additional vat issues the structure may create and possible BADR loss issues would have me seriously wondering if this is really a clever idea.

Edit- there is also the real danger of legislation in this sector e.g. Edinburgh Council have introduced a need for retrospective planning permission and a need for licensing re holiday lets, I strongly suspect other hot spot holiday let areas, especially where there are housing shortages, may well in time follow suit, so there is business risk here- setting up a cross letting structure to use a company within a volatile, and in places frankly hostile, business sector may not be good news and if you then want to sell to exit market absence of BADR may be pretty painful-Caveat Emptor.

https://www.edinburghlive.co.uk/news/edinburgh-news/new-edinburgh-planni...

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Replying to Crissiea:
paddle steamer
By DJKL
31st Mar 2023 00:23
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Replying to Jason Croke:
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By Justin Bryant
31st Mar 2023 08:58

You heard it here first re TOMS Airbnb VAT trick: https://www.accountingweb.co.uk/any-answers/should-taxi-firms-use-toms-f...

And surely long residential lets are VAT exempt and so don't need any such VAT trickery in the 1st place?

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Replying to Justin Bryant:
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By I'msorryIhaven'taclue
31st Mar 2023 11:42

Residential let exempt, but the partial exemption de minimis rules might allow the OP's company scope to claw back (up to £625 month) input VAT on property-related expenditure.

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