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Trade via a limited company

Can a B&B trade via a limited company if the properties are owned personally?

Hi everyone,

I've been apporached by a potential client looking for some advice with regards to the structure of their trade going forward and would apprecaite some third party guidance.

The client owns 2 properties. One is essentially a FHL and the other is their personal residential property which they run as a B&B.

My question is: can the trade be run through a limited company whilst the properties remain in the name of the individual? An agreement would be drawn up so that the company rents the properties from the owner i.e. For the property that the owners live in, the rent would include and element to cover the business share of any mortgage interest, heat and light etc. that the owner will continue paying for. For the FHL the rent would be for the property only and the company would be responsible for all bills.

Thanks in advance.

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07th Feb 2019 14:58

I can't immediately think of a reason why not. I think at the very least you would need an agreement between the individual and company which would provide for arms length terms.

Obviously a large number of tax issues - loss of PPR presumably being one?

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07th Feb 2019 14:59

Make sure your client takes legal advice on the agreement regarding SDLT.

It is potentially payable even on an unwritten lease.

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07th Feb 2019 15:16

Has the client shared with you the thinking behind the plan?

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By WAcc
to Accountant A
08th Feb 2019 17:41

Primarily tax savings. This year (to 5th April 19) combined turnover is expected to be around £150k with a NP of £90k so will push them into the 40% tax bracket.

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07th Feb 2019 17:01

Similar planning was done here:

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10695/TC0...

A tenancy at will (like a licence) is inconsistent with the existence of sub tenants. An express tenancy at will is generally restrictive and will prohibit the tenant from alienating the tenancy, making alterations or changing the use of the property (none of which were a problem in the above case).

So although it could potentially work, it’s a bit risky re SDLT if HMRC challenge it and argue it’s really a lease (or a periodic tenancy at least).

To avoid SDLT and in particularly the 3% SDLT surcharge, the lease should have a value of less than £40k, as s53 FA 2003 will cause a deemed market value SDLT charge on the value of the lease. Also, if you do a short lease to try avoid this problem then repeated (consecutive) short leases are likely to be linked transactions and cause the £40k limit to be breached eventually (at which point 3% SDLT is due on all the MV of all the linked leases).

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to Justin Bryant
08th Feb 2019 09:44

I see no problem with this planning. Sure, you have work through a number of tax issues, but don't you always?

Just wondering though... is this (also) a million miles from what GAAR is aimed at? Remind me a little, what is your view on that?

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to Tax Dragon
08th Feb 2019 09:56

That other GAAR discussion as going nowhere since no-one could understand why HMRC's following comment from the link below:

"They claim that by making an artificial modification of the arrangements aimed at defeating the intention of the legislation (by selling the company to a third party rather than winding it up, for example) the TAAR will not apply."

https://www.accountancydaily.co/hmrc-flags-phoenixism-tax-avoidance-schemes

Was not totally disingenuous when contrasted to actual properly artificial (Ramsay) share disposals like that in the link below:

https://www.bailii.org/ew/cases/EWCA/Civ/2019/93.html

If you still disagree go try find me a Ramsay case with a 3p arm's length share sale with no intervening steps. You won't be able to of course.

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to Justin Bryant
08th Feb 2019 13:45

I didn't say I disagreed. In fact, I'd go further than you and say that to describe the "modification" as "artificial" is just plain wrong.

But that doesn't answer my question.

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