limited Company and shareholder living rent free

Family business, 2 directors (4shareholders)

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Family business with 4 shareholders. No dividends paid at all. Shareholder 4 receives a property rent free (value £2800 a month) and has lived this way for 7 years.

Shareholder 3 is not happy as she deems this unfair. How can she deal with this and can she get the equivalent as this is unfair treatment. She doesn't wish to sell her shares she just wants fairness.

Is the rent free taxable? Can Shareholder 3 demand the same? Is this classed as a dividend as it does have a cash equivalent.

 

Replies (39)

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By David Ex
19th Nov 2023 12:21

Has shareholder 3 discussed the concerns with shareholders 1, 2 and 4? Might be a good place to start. Oh, and has anyone spoken to the director(s)?

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Replying to David Ex:
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By Abi808
19th Nov 2023 12:30

David Ex wrote:

Has shareholder 3 discussed the concerns with shareholders 1, 2 and 4? Might be a good place to start.

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Out of my mind
By runningmate
19th Nov 2023 12:42

Are any of the 4 shareholders also directors or employees of the company? Are any of the shareholders married to a director or employee of the company? Does the company own the property in which shareholder 4 lives rent free?

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Replying to runningmate:
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By Justin Bryant
20th Nov 2023 09:33

NB shadow directors are caught by BIKs.

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By Abi808
19th Nov 2023 13:03

Hi, thanks for your questions.
Both directors are married, their children and directors are shareholders. No dividends given. Director takes a wage and that’s it. Property is not owned by company, it is owned by both directors. Wife (Director) is company secretary and Director husband takes a wage. The children do not get a wage but obviously shareholder 4 gets a 7 bedroom house rent free equivalent to £2800 a month rent.

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Replying to Abi808:
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By Tax Dragon
19th Nov 2023 13:11

Can you reread and edit that post within the half hour so it makes a bit more sense please?

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Replying to Tax Dragon:
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By Tax Dragon
19th Nov 2023 13:13

Is it basically parents let one offspring live in a house they own, another offspring isn't treated the same, feels hard done by... and the company is irrelevant to the story?

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Replying to Tax Dragon:
Out of my mind
By runningmate
19th Nov 2023 13:21

So Dad & Mum are a married couple who are directors of, and shareholders in, ABC Ltd. Their two children are also shareholders in ABC Ltd but not employees of the company. One of the children lives rent free in a house owned by Dad & Mum.
Is that correct?

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Replying to runningmate:
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By Tax Dragon
19th Nov 2023 13:43

runningmate wrote:

Does the company own the property in which shareholder 4 lives rent free?

Turns out this may have been one of the most inspired questions ever asked in this forum. The way the OP was phrased, it was a given that the answer to this was "yes"... or so anyone else (including me, of course) would have assumed!

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Replying to runningmate:
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By Abi808
19th Nov 2023 13:46

Yes that’s correct ✅

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Replying to Abi808:
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By Wanderer
19th Nov 2023 13:22

Abi808 wrote:

Property is not owned by company, it is owned by both directors.

So almost all of your question and other points made are irrelevant.
This is just a matter between parents, their favoured child and their other child.

Nothing to do with the company / directors / secretary/ shareholders / dividends / salaries etc. etc.

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Replying to Wanderer:
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By Abi808
19th Nov 2023 13:48

Would this not count as giving a cash equivalent to a shareholder?

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Replying to Abi808:
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By Wanderer
19th Nov 2023 13:51

No, the company has no relevance to the arrangement.

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Replying to Abi808:
By Ruddles
19th Nov 2023 13:55

Yes. Cash given by the parents to their daughter - who just happens to be a shareholder. Still, in the face of the facts presented, nothing to do with the company.

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Replying to Ruddles:
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By Tax Dragon
19th Nov 2023 14:25

Struggling with "yes" as an answer for any purpose (tax, law, family, other) here.

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Replying to Tax Dragon:
By Ruddles
19th Nov 2023 15:13

It was a yes said with tongue in cheek and in the most general sense. If it is accepted that if an employer provides rent-free accommodation to an employee/shareholder that is to be considered a cash equivalent why should rent-free accommodation provided by a parent to their child not be considered likewise?

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Replying to Abi808:
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By Tax Dragon
19th Nov 2023 13:58

Abi808 wrote:

Would this not count as giving a cash equivalent to a shareholder?

While I agree with Wanderer... do you think that the arrangement continues only because the child is a shareholder?

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Replying to Tax Dragon:
RLI
By lionofludesch
19th Nov 2023 19:16

Tax Dragon wrote:

Abi808 wrote:

Would this not count as giving a cash equivalent to a shareholder?

While I agree with Wanderer... do you think that the arrangement continues only because the child is a shareholder?

I vote no, because the other shareholder isn't getting a free house with her shares.

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Replying to Abi808:
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By Merseyside Mike
19th Nov 2023 14:00

Why do you think the company has anything to do with this in any way whatsoever?

The property is owned personally by 2 people - nothing to do with them being directors of a company.

The house owners have an arrangement with a family member - again, nothing to do with the fact they have shares in a company (which has nothing to do with the property).

Are you by any chance Director 3? Looks like you're trying to find a link that doesn't exist.

Thanks (2)
Replying to Merseyside Mike:
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By Abi808
19th Nov 2023 17:29

This doesn’t need to get personal. This is not an area of my expertise so I am politely asking for a client as they have expressed deep concern.Really didn’t expect impolite replies but I guess this is how some deal.

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Replying to Abi808:
RLI
By lionofludesch
19th Nov 2023 19:18

Abi808 wrote:

This doesn’t need to get personal. This is not an area of my expertise so I am politely asking for a client as they have expressed deep concern.Really didn’t expect impolite replies but I guess this is how some deal.

Asking why you think it might be taxable is a fair question, imho. You seem to be the only one who thinks that.

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Replying to lionofludesch:
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By Abi808
19th Nov 2023 19:26

I am enquiring as to whether a cash gift is taxable that is all. Is that not a fair question or do I have to walk into a battle ground of exhaustive ego. Can nobody just be nice anymore in this field. Seems to be somewhere to show off and belittle instead of helping with a good heart.

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Replying to Abi808:
RLI
By lionofludesch
19th Nov 2023 19:46

Abi808 wrote:

I am enquiring as to whether a cash gift is taxable that is all.

That's not what you asked in the OP.

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Replying to Abi808:
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By Leywood
19th Nov 2023 20:22

You’re changing your question now.

How on earth is MM asking you if you are Director 3 not nice? Think you are being a bit over sensitive.

A thank you for the advice you’ve received so far wouldn’t go amiss, especially with the lack of a please in the OP.

Thanks (5)
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By Tax Dragon
19th Nov 2023 22:07

Abi808 wrote:

This doesn’t need to get personal.


Agreed.

Abi808 wrote:

This is not an area of my expertise


Agreed.

Abi808 wrote:

so I am politely asking for a client


If you say so.

Abi808 wrote:

as they have expressed deep concern.


About what?

Abi808 wrote:

Really didn’t expect impolite replies but I guess this is how some deal.


No idea what you're talking about. The replies have been no less polite than the question.

Abi808 wrote:

I am enquiring as to whether a cash gift is taxable that is all.


This is the first time you have mentioned cash gifts. But to answer - cash gifts have tax consequences. What those consequences are depends on who is making the gifts, and to whom.
Thanks (1)
RLI
By lionofludesch
19th Nov 2023 22:37

I don't understand querists like this. They ask the wrong questions, fail to provide absolutely crucial information, then whinge about our answers being "not nice".

On the facts as currently presented, this seems to be a straightforward case of the parents giving money to their daughter. IHT seems to be the tax at issue but can we rely on this version of the facts being the final one?

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Replying to lionofludesch:
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By Tax Dragon
19th Nov 2023 23:00

Maybe it's a caretaker's wage for looking after their property?

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Replying to Tax Dragon:
RLI
By lionofludesch
19th Nov 2023 23:17

Tax Dragon wrote:

Maybe it's a caretaker's wage for looking after their property?

Could be.

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Replying to lionofludesch:
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By Justin Bryant
20th Nov 2023 09:07

Surely that would only potentially apply to mild-mannered janitors.

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Replying to Justin Bryant:
paddle steamer
By DJKL
20th Nov 2023 14:01

A beloved children's cartoon featuring "Penrod"?

https://en.wikipedia.org/wiki/Hong_Kong_Phooey

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Replying to Justin Bryant:
paddle steamer
By DJKL
20th Nov 2023 14:14

A beloved children's cartoon featuring "Penrod"?

https://en.wikipedia.org/wiki/Hong_Kong_Phooey

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By bernard michael
20th Nov 2023 09:28

To further muddy the marshy waters
Cash gifts have possible IHT consequences

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Replying to bernard michael:
RLI
By lionofludesch
20th Nov 2023 10:46

bernard michael wrote:

To further muddy the marshy waters
Cash gifts have possible IHT consequences

Agreed. As noted above.

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Replying to lionofludesch:
the sea otter
By memyself-eye
20th Nov 2023 11:01

Maybe not after Wednesday?

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Replying to memyself-eye:
RLI
By lionofludesch
20th Nov 2023 12:24

memyself-eye wrote:

Maybe not after Wednesday?

Or maybe before Wednesday.

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By FactChecker
20th Nov 2023 11:43

Why is this thread still attracting comments ... should it not have died after the 5th post as soon as OP (belatedly) announced "Property is not owned by company"?

Unless there is some contractual condition hidden in the statement "Shareholder 4 receives a property rent free", there's no evidence that the two elements (shareholding and reward/benefit) are connected or even related. End of story.

Thanks (1)
Replying to FactChecker:
RLI
By lionofludesch
20th Nov 2023 12:26

FactChecker wrote:

Why is this thread still attracting comments ... should it not have died after the 5th post as soon as OP (belatedly) announced "Property is not owned by company"?

Because there might still be a problem even if the OP picked on the wrong problem.

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Replying to lionofludesch:
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By FactChecker
20th Nov 2023 13:51

Indeed the possibilities for unearthing other problems are near infinite given the paucity of information provided (and inconsistencies therein).
But that's not what OP was asking (which appears to be all about a nebulous concept of fairness or otherwise within a family - and entirely unrelated to the shareholding that was placed front and centre).

Sibling may have disability needs or just be a more pleasant person than OP or (cue lengthy list of guesses) ... we don't (and I for one have no wish to) know.

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Replying to FactChecker:
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By Leywood
20th Nov 2023 16:04

Plus life ain’t fair!!

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