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Entrepreneurs' Relief: Do You Charge Your Company Rent?

What happens when you own your premises ...

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POSTED BY HELEN BEAUMONT ON 11/03/2020 @ 8:00AM

It's quite common for business owners to personally own their business premises. This is because it's usually cheaper to buy property than it is to rent, but can you claim Entrepreneurs' Relief if you choose to sell it?

Entrepreneurs' Relief could be available when you own, then sell, your company's premises!

Entrepreneurs' Relief could be available when you own, then sell, your company's premises!

copyright: bialasiewicz / 123rf

There are also some useful tax relief's by owning your own premises so today, I want to talk about the Capital Gains Tax issues around purchasing a commercial property and suggest some alternatives in case you are affected. There are three common scenarios.

  1. 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.

  2. 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.

  3. 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.

Until next time ...



HELEN BEAUMONT

Would you like to know more?

If you'd like to know more about Entrepreneurs' Relief, or are considering selling your business premises, do call me on 01908 774323, leave a comment below or click here to ping over an email and let's see how I can help you.

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About Helen Beaumont ...

 

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.