Rent paid for business office

What is allowable.

Didn't find your answer?

Hello everyone.

This isn't something I've come across before, although probably should have.

I have a client who has been allowed to use a spare room in his parent's house as his office. The room is solely for the business and no one else in the house uses it.
He also lives in the house and pays some rent to his parents, but that is not meant to be for the business.

They want to pay a nominal sum each month to the parents for renting the office paid by his Limited Company (he is Director/Shareholder), which obviously includes electric and heating of the office.

Customers never visit the home/office.

I wonder if you know if this is ok, and whether there would be any tax implications of the payments on the parents. Any pitfalls etc that you may be aware of would be helpful.

My thoughts are that it may be, because he is not the owner of the property or paying the bills personally, so it would be payable to a third party rather than requiring a specific calculation breaking down the costs / personal use etc.

Any help would be very gratefully received.

Stay safe everyone!

Replies (13)

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RLI
By lionofludesch
25th Jun 2020 14:15

Company gets a tax deduction, probably 19%, parents pay tax, probably 20%.

Possible loss of PPR on the ultimate sale of the house, might not matter if there are no other disposals during the year but impossible to say at the moment.

You may have more information which will suggest the contrary but I'm not seeing much advantage, if any. I think you client is looking at the upside of company tax relief and ignoring the downsides.

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Replying to lionofludesch:
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By Matrix
25th Jun 2020 14:21

Parents would only pay tax on the rental profits. But working out the actual expenses for the computation sounds onerous.

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Replying to lionofludesch:
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By Paul Crowley
25th Jun 2020 14:26

Parents only pay tax if more than £2,000 per annum, Assuming joint owners and no other rental properties

£1,000 each rent allowance

Do not even need to register for SA

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Replying to Paul Crowley:
By Tim Vane
25th Jun 2020 14:46

Paul Crowley wrote:

Parents only pay tax if more than £2,000 per annum, Assuming joint owners and no other rental properties

£1,000 each rent allowance

Do not even need to register for SA

Nope. You need to read the OP. Property Income Allowance not available.

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Replying to Paul Crowley:
RLI
By lionofludesch
25th Jun 2020 14:46

Paul Crowley wrote:

Parents only pay tax if more than £2,000 per annum, Assuming joint owners and no other rental properties

£1,000 each rent allowance

Do not even need to register for SA

Fair point.

Again - no numbers quoted. I like numbers.

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Replying to lionofludesch:
By Tim Vane
25th Jun 2020 14:47

lionofludesch wrote:

Fair point.

It's a let to a connected company. Property Income Allowance not in point.

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Replying to Tim Vane:
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By User deleted
25th Jun 2020 14:51

Is it a connected company?
The parents own the house, and have no connection to the company other than that their son is renting the room.

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Replying to User deleted:
By Tim Vane
25th Jun 2020 15:10

enoryt010 wrote:

Is it a connected company?
The parents own the house, and have no connection to the company other than that their son is renting the room.

Are you suggesting that "parent" does not fall under the definition "any relative or partner"? Good luck arguing that with HMRC.

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Replying to Tim Vane:
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By User deleted
25th Jun 2020 15:13

Thanks

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Replying to lionofludesch:
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By User deleted
25th Jun 2020 14:50

For example, paying £100 per month as rental. Parents are joint owners of the property.

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Replying to lionofludesch:
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By User deleted
25th Jun 2020 14:49

In theory though, the PPR would be lost in any case as the room is being used exclusively for business use, with or without rent being paid to parents or expenses claimed if it were his own property.

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By pauljohnston
29th Jun 2020 09:44

The parents can charge a rent equiv to the proportional cost of renting the room with no tax implications. Any thing in excess would be a rental by the Ltd Company

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By garethgreen
29th Jun 2020 09:47

I seem to remember there might be an issue about business rates, if the room is exclusively for business use.

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