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Related Party Transaction? Charity Rental Payment

Related Party Transaction? Charity Rental Payment

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Hi Guys,

Client is a charity which is renting a building owned by a limited company. The limited company shares are owned 60% by an individual who is also an employee of the charity. The other 40% is owned by the charity directly. Reason for this set up is the charity could not afford to purchase the building outright thus was part funded by an employee. Eventually the plan is to sell all of the shares to the charity as and when cash flow allows.

Meantime the charity needs to pay rent to the limited company and this is where there is confusion. Annual rent is 25k per annum. Does the charity pay this in full and then receive 40% of the dividend share back at the end and 60% to the  employee? Or due to the related party transaction and the fact the charity owns 40%, does the charity only pay 60% of the rent (amount attributed to the individual) and the dividend only goes to the individual?

Obviously there is less corporation tax to pay on the latter.

Pls advise.

Thanks guys.



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By johngroganjga
17th May 2017 12:01

I don't see why there should be any confusion.

Has to be the former.

But if as a matter of cash flow the charity wants to make itself a debtor of the company by underpaying the rent, and then repay its debt by not taking the full dividend in cash at a later date, there should be no problem, provided of course that the company agrees.

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By khalm0
03rd Jun 2017 17:43

Any other opinions from anyone?

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