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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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.
Parents would only pay tax on the rental profits. But working out the actual expenses for the computation sounds onerous.
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
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.
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.
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.
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.
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.
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
I seem to remember there might be an issue about business rates, if the room is exclusively for business use.