The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The company owner may choose to retain the business premises personally and extract profits by way of rental income from the company. The taxation of property income is covered in the Taxation of property income for individuals guidance note. There are many considerations other than taxation, ie commercial and legal, as to whether the individual proprietor or the company should retain ownership of business premises. One of the main considerations is that often the property is used to secure bank finance.
If the company holds the property, it can then use it as security to raise bank finance with interest charges being deductible against profits in the company. If the owner retains the property in their personal possession, they could raise a personal loan against the property and lend the funds to the company. Interest payable on personal loans to finance the acquisition of business premises is generally allowable in calculating taxable profits, but there may be a cap on the level of interest relief ― see the Cap on unlimited income tax reliefs guidance note. It may therefore be better for the company to take out the loan, although personal guarantees may be required.
In overview, the main considerations in some common scenarios are highlighted below. Further details can be found in the Personal or company ownership guidance note.
There are several factors when considering whether a business owner retains a property to rent to their company:
any increase in value may be subject to capital gains tax at 10% or 20% (assuming it is a commercial property) (10% if the transfer qualifies for business asset disposal relief (previously known as entrepreneurs’ relief) as an ‘associated disposal’)
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