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Pros & Cons of Shareholder owing business property

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Hello Everyone

The owner of a business is currently holding a property personally and renting it to the business. However, the business owner is a higher rate tax payer and therefore paying 40% (at least) tax on the rental profits (there are very few costs).

However, obviously he is only gaining a 19% CT deduction in the company tax comp.

Is there any obvious reason I’m missing why he shouldn’t just reduce the rent to keep him within the basic rate, and hence gain the tax difference.

Thanks for your help

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By johngroganjga
12th Apr 2019 12:18

Are you forgetting the 32.5% he would pay if he took the same money out as dividend? That needs to go in your calculations somewhere. By comparing the tax if he takes money out of the company, with the tax if he leaves it in, you are not comparing like with like.

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Replying to johngroganjga:
By Wilson Philips
12th Apr 2019 12:43

Or 10% if he takes the cash out on liquidation? Or 7.5% if he can drip feed dividends in the future? I agree that it is difficult to compare like with like.

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By Wilson Philips
12th Apr 2019 12:50

You need to be aware of the rules re deemed lease premiums where rent is lower than the market rate.

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By lionofludesch
12th Apr 2019 17:34

Then there's the CGT Annual Exemption he might be able to claim on sale of the property. Plus thed money would already be his. No need to extract it. But that's years down the line.

It's never clear cut. You have to take a view.

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By Matrix
12th Apr 2019 19:52

It depends what other income he is receiving and whether it is from the company or not.

The tax on rent is lower than dividends and salary as there is no NI so, provided it is on arm’s length terms, then this may be the optimal solution.

If he can live off £50k a year then reduce the salary or dividends instead.

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