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Partnership premises

Buying property and renting to themselves

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Husband and wife run a trading partnership from a commercial property which they rent from an unrelated third party. One of partners is looking to buy the building in their own name. Can he then rent it to the partnership of which they are a partner? and the rent will be tax deductible for the partnership and assessable on the one partner who will own the building?   

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19th Jun 2019 19:14

What problem do you foresee?

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to johngroganjga
20th Jun 2019 09:30

I think you are missing the point of the question.

I've seen examples (in the context of IHT/POAT) that run something like: son lives in Mum's house; Mum gifts half to son; Mum can avoid worrying about GWROB/POAT issues by paying rent to son for her continued occupation. The examples never say that Mum should pay full rent to the joint owners. Indeed, that would seem odd – she'd be renting from herself.

The question here might be: since a partnership has no legal personality, does its existence make any difference?

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19th Jun 2019 19:58

Just be aware that charging rent (either full market rent or partial) can have implications for Entrepreneurs Relief in the future if the property is sold as part of eventual withdrawal from the business.

Example 2 at HMRC's CGT manual illustrates the point https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64145

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By pauld
20th Jun 2019 10:11

Yes I think Tax Dragon has made the point which is not clear in my question. The partnership is not a separate legal entity for income tax and so the partner is just renting from himself?

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to pauld
20th Jun 2019 10:36

I don't think this is an uncommon situation Paul. You certainly find some law-firm partnerships where one of the partners personally owns the property that the partnership practices from.

If you do have a look at Example 2 mentioned above, it starts off "On 5th April 2010 M, leaves the partnership of which he has been a member for 12 years and sells his one-third partnership interest, to the remaining two partners, making a gain of £250,000. Throughout that 12 years M has personally owned the property from which the firm has traded."

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to pauld
20th Jun 2019 10:58

It is fairly commonplace, as gainsborough says.

Some things you just get on with and don't think too hard about - other than the tax.

(Thinking about the tax (including capital taxes) might suggest a different set up in this case, but that's a different question.)

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By pauld
20th Jun 2019 11:35

Thanks Gainsborough and Tax Dragon for your guidance. Sometimes something just doesn't sound right e.g. paying rent to yourself but think I am overthinking it in this case.

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