Often there are valid personal considerations for keeping significant assets such as land and buildings outside the company. The reason may be the ownership by different family members of the shares in the company; for example where the father owns the business premises, but his sons also participate (and are shareholders) in the company. It then makes sense to make the company's position certain. It is necessary to consider whether the company should be allowed to use the premises informally, or whether there should be a contractual entitlement establishing the payment of rent. There could be a range of options between these extremes.
The formality of the arrangement is one for personal decision in the context of the overall business structure. Sometimes a proper lease may be constructed, containing the usual duties of landlord and tenant and requiring payment of a market rent with regular review. In a close family situation, an informal agreement with the amount to be agreed from time to time might be satisfactory. The impact of stamp duty land tax on the arrangement should be considered.
As far as the property owner is concerned, payment of rent may be seen as another relatively tax efficient means of extracting profit from the company. In his hands, the receipt is one of investment income, to be included in his self-assessment tax return, with tax payable on 31 January following the end of the tax year concerned (see E1.250). This cash flow