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Purchasing a flat in a company for Director

Any BIK

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Client is a Director/Shareholder of 5 LTd companies, 4 of which are based very close to his home 1 is around 200 miles away.

When visiting the 5th company in his role as Director he currently stays in a hotel for a few nights, which is paid for by his holding company (one of the four referred to above). This is becoming expensive, and so he is considering purchasing a flat to stay in instead which given the very low property prices in that part of the country will be far more cost effective.

The hotel costs are currently paid for by holdings and the property would also be purchased in the same way.

Would a 20% BIK be relevant here when he is not staying there?

Any thoughts would be much appreciated and let me know if any further information is required?

 

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By SXGuy
03rd Oct 2019 08:39

Few points to make.

You say he stays in a hotel "A few nights a week"
Therefore if your client were to rent a flat, what do you suppose happens to the rent portion for which he isn't staying there each week? if he stays in a hotel two nights a week, what do you reckon happens to the rent money, for the other 5 days?

How can you or your client prove, that every time he stays at the flat, it is solely for the purpose of his work? How do you prove he doesn't stay there any other day of the week which is unrelated to the business?

I would hazard a guess and say, yes BIK would be applied, since he can not rent a property for " a few days a week"

You may find, the expensive hotel stays, end up working out cheaper, or he could of course, find a cheaper hotel.

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By Tax Dragon
03rd Oct 2019 09:05

Why are you limiting the BIK to the period of non-use?

Why do you think the place of work 200 miles from home is not a permanent workplace?

Why do you refer to 20% (Ch10, the residual liability) when there is specific provision for the treatment of living accommodation in Ch5?

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Replying to Tax Dragon:
RLI
By lionofludesch
03rd Oct 2019 10:13

As soon as you start buying/renting a flat, the argument that there's a permanent workplace becomes exponentially stronger.

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Replying to lionofludesch:
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By Tax Dragon
03rd Oct 2019 10:24

I'll be honest: I'd only read the first sentence of the OP before I'd concluded there was likely a permanent workplace - having 4 subsidiaries is a giveaway. And is it weird, or just me, that holdings pays for the hotel?

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Replying to Tax Dragon:
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By The Dullard
03rd Oct 2019 10:31

Permanent workplace? And ITEPA 2003, s 340?

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Replying to The Dullard:
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By Tax Dragon
03rd Oct 2019 10:48

Good point, thank you. But (unless I'm misreading what "the employment" means at various places) doesn't that just make it weirder that HoldCo pays the cost?

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By The Dullard
03rd Oct 2019 10:35

There is a BIK, but it's not 20% of the purchase price. Neither is it the rent paid, when the flat is being bought. It's the old rateable value plus the official rate of interest applied to the excess of the purchase price over £75,000.

You might get a corresponding expense deduction if you can show that it is an expense of necessary travel between group employments.

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By Accountant A
03rd Oct 2019 10:54

I'm intrigued to know in which part of the country hotel rooms are egregiously expensive but flats are p!ss cheap.

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Replying to Accountant A:
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By paul.benny
03rd Oct 2019 11:09

2 nights a week at £100/night = £10,000 a year. If property funding was at 3%, that would fund a £300k apartment. That said, the property also has to be furnished and there are Council Tax and utility bills.

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Replying to Accountant A:
RLI
By lionofludesch
03rd Oct 2019 12:40

Accountant A wrote:

I'm intrigued to know in which part of the country hotel rooms are egregiously expensive but flats are p!ss cheap.

Loads of seaside places. Rhyl, Blackpool for example.

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Replying to Accountant A:
Hallerud at Easter
By DJKL
03rd Oct 2019 16:00

It can certainly work abroad- my brother in law spends between two nights and five nights in Malta most months, attending at one of his clients. Renting a flat, including all running costs, works out cheaper than a hotel and allows him to say have access to a printer and other apparatus in the evenings - to extend the working day-without having to cart kit with him by plane each time he needs to attend ( QP audit role)

The big bonus is that the Maltese authorities also appear to be willing to consider this as an establishment in the EU post our leaving the EU, and given well over half his current turnover is in the EU this may end up saving his business- providing he can overcome the possible qualification recognition regulation issues that still need addressed..

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By Accountant A
03rd Oct 2019 11:05

SA2016 wrote:

he is considering purchasing a flat to stay in instead which given the very low property prices in that part of the country will be far more cost effective.

Might be worth checking the client's workings. By the time you have furnished the said flat (further BIK?) and paid service charges, utility bills, council tax, insurance, TV licence, broadband and maintenance costs - in addition to funding the original purchase - I can't believe that comes to less than a few nights in a Travelodge or Premier Inn.

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Replying to Accountant A:
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By Tax Dragon
03rd Oct 2019 11:15

Accountant A wrote:

By the time you have furnished the said flat (further BIK?)...

Ah, that's why 20% was relevant. OP, I think I am finally understanding the question.

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RLI
By lionofludesch
09th Oct 2019 15:10

Good article on this subject in Taxation Practitioner this month (Oct 2019) if anyone's still interested.

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