It's common for directors to own their business premises. This is because it's sometimes cheaper to buy property than to rent ...
- Claiming entrepreneurs’ relief on commercial property
If you are the director and main shareholder of a limited company and own the offices from which your company trades, you could choose not to charge the business rent for its use of said property. Instead, you could be drawing a small dividend from the company.
With your total income remaining within the basic rate band each year, you have minimised the tax payable on the dividend so if you choose to sell the property, you can claim Entrepreneurs' Relief and pay Capital Gains Tax at the 10% rate.
- Claiming Loan Interest Tax Relief on a commercial property
Again, if you are the director and main shareholder of a limited company and also own the company premises, you can charge rent at a rate that is lower than the market rate. In this scenario, the rental payments are chargeable as income tax. However, having a loan on the property, you are able to deduct the loan interest in order to reduce the tax you pay.
When selling the property, you can still claim Entrepreneurs' Relief, but the amount is restricted by how much rent you have charged the business.
- Claiming rental income in lieu of salary
If you charge your company the full market rental price for the use of the premises, you must declare this income in full on your self-assessment tax return. If you hadn't taken a rental income, you would have needed to receive a higher salary or dividends in return.
In this instance, you wouldn't receive Entrepreneurs' Relief on the sale of the premises but the benefits come earlier as the company gets corporation tax relief for the rental payments and they do not incur employee's or employers' national insurance contributions.
The end result regarding who pays what Capital Gains Tax and who gets what reliefs changes because everyone's specific situation is inherently different. Before making any plans, I strongly recommend you take independent tax advice.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.