Renting a property to your business.


R

rcheese5

My wife is setting up in business and we are thinking of buying a
property to run the business out of. We hope to buy the property by
taking extra on our current mortgage. My question is can we rent this
property to my wife so she doesnt have to pay herself a large wage to
pay the extended mortgage, thus incurring tax an nat.ins?
 
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P

Peter Saxton

My wife is setting up in business and we are thinking of buying a
property to run the business out of. We hope to buy the property by
taking extra on our current mortgage. My question is can we rent this
property to my wife so she doesnt have to pay herself a large wage to
pay the extended mortgage, thus incurring tax an nat.ins?
There seems some confusion here.

Setting up a business could mean sole trader (your wife), partnership
(you and your wife - although you only refer to your wife regarding
the business) or company (with your wife as an employee).

You mention about renting the property to your wife - that implies
sole trader.

You mention pay her a large wage - that implies company.

You can rent the property to whatever form the business takes. It
would have to be done more formally if you have a limited company. If
the rent covers the capital repayments then there would be some profit
element taxable on the owners of the property. Usually it is best not
to hold property in a limited company but that is another issue.
Whether to use a limited company to run the business is another
question. You should get the advice of a local accountant to help you
through all the issues but the short answer is that your wife
shouldn't have to pay herself a large wage to pay the extended
mortgage but effective tax relief may only extend to the interest on
the mortgage.
 
F

Fred

You can rent the property to whatever form the business takes. It
would have to be done more formally if you have a limited company. If
the rent covers the capital repayments then there would be some profit
element taxable on the owners of the property. Usually it is best not
to hold property in a limited company but that is another issue.

Why?

If the company is a trading company and the property is held by the trading
co, then there's no inheritance tax. "Capital" repayments are not subject
to corporation tax as long as they are below £10k pa.

Yes it is more difficult to get the money out but then the company can be
sold?
 
P

Peter Saxton

Why?

If the company is a trading company and the property is held by the trading
co, then there's no inheritance tax. "Capital" repayments are not subject
to corporation tax as long as they are below £10k pa.
Why no inheritance tax?

What capital repayments? Are you talking about the company taking out
a mortgage? This is a totally different scenario to the one given by
the OP? That last sentence has totally lost me on what you are meaning
- can you explain the following:

"Capital" repayments - is the company making a payment of capital on a
mortage it has taken out?
subject to corporation tax.- why should there be any charge to
corporation tax on any payment?
below £10k - are payments over £10k subject to corporation tax?
Yes it is more difficult to get the money out but then the company can be
sold?
I would say the main disadvantage of a company is no taper relief.
 
D

Dave Hillam

Peter Saxton wrote in uk.business.accountancy on Tue, 06 Sep 2005
06:12:13 +0100 MID said:
You can rent the property to whatever form the business takes. It
would have to be done more formally if you have a limited company.
PMFJI, but could you be more specific about "more formality"? I'd have
thought there would need to be documentation if it was being rented to
a sole trader.

Cheers

Dave
 
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Peter Saxton

Peter Saxton wrote in uk.business.accountancy on Tue, 06 Sep 2005


PMFJI, but could you be more specific about "more formality"? I'd have
thought there would need to be documentation if it was being rented to
a sole trader.

Cheers

Dave
With a limited company being a separate entity it is more important to
ensure that it is clear what entity is receiving income and what
entity is incurring expense. With a sole trader they only have to show
what expense is incurred.

If things start to get convoluted then more documentation is needed.

If two people own a property and rent it to a limited company I would
say they should invoice the company and have a contract.

If a sole trader owns the property they only have to show what
expenses they incurr.
 
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