Become your company's landlord

5 reasons why you should become your company’s landlord

Most of you will probably have heard of buy-to-let: you buy a property and rent it out to someone else. But have thought about renting that property back to your own company?

Okay, you might not be able to go out and buy offices, but the garage you use for storing your company’s stock or the summerhouse you built as your office could fall into this category.

Reasons to become your own company’s landlord

Sounds like a bit too much hassle? Well, let’s take a look at the top reasons why you should consider it:

  1. It’s a tax efficient way to extract income from your limited company
  2. The rent that the company pays is tax deductible from your profits, reducing your Corporation Tax liabilities
  3. The rent you receive from your limited company is taxable but isn’t liable for National Insurance
  4. You can claim tax deductions from the rental income including interest paid on money you borrowed to purchase the property
  5. And you can also claim capital allowances for plant and machinery attached to the building as a tax deduction from your rental income.

Sounds good doesn’t it and it’s not that difficult to set up. We’ve already helped a number of clients in the Aylesbury, Tring and High Wycombe areas become their company’s landlord and they are already benefiting from Corporation Tax breaks.

Let’s take a look at what you will need to do.

Types of property you can charge rent on

First things first, you need to work out if your property qualifies. You can charge rent on any property you own. This includes:

  • A commercial or a domestic building
  • Land
  • Part of a building
  • Your garage or any outbuildings.

Charge as little rent as you wish, but remember, if the rent doesn’t cover expenses such as repairs and insurance, you will end up losing money and won’t benefit from Corporation Tax breaks.

No, the spare bedroom you use as an office doesn’t count

If you use a room in your main residence as your office or for storage, then unfortunately it doesn’t qualify for rent-a-room relief. However, if you rent a room to provide accommodation for a company employee, then as long as the total rent received in a tax year doesn’t exceed £7,500, the rent will be tax-free.

How to become your limited company’s landlord

This is relatively easy to set up. First, you will need to have a formal lease agreement between you and the company, which states the rental amount and how often it should be paid.

You will then need to inform all the directors of your company at a board meeting with the terms of the lease agreement recorded in the minutes.

The company should then pay the rent by cheque or electronic transfer to your private bank account. This will ensure there is a clear audit trail and stop the tax man asking questions.

What to do if you jointly own the property

If you own the property with your spouse or someone else, then the rent should be paid to you both. You can either set it up, so the company pays all the owners proportionally, or you can choose to receive all the rent and then pay out the proportion due to the others.

How to fill out your personal tax return

Any rent you receive will be classed as income from land or property. But don’t worry about this too much, as your accountant should be able to sort it out for you. And if you’re looking for accountants in Aylesbury or Tring, we have lots of experience sorting out personal tax returns, so give us a call.

Expenses you can deduct from the rent

One of the top reasons people become their company’s landlord is because they can deduct a number of expenses from the rent. These include:

  • Interest paid on a loan used to buy or improve the property
  • Repair costs
  • Cost of services such as water rates
  • Buildings insurance
  • Accountancy fees for working out your profit after deductions – yes really!

Need more help?

Over the years, we’ve successfully helped a number of clients around the Aylesbury, Tring and High Wycombe areas become their own company’s landlords. If you’re not sure that your property qualifies, or don’t know what to do next, give us a call, we will be happy to help.

Next time, we’ll take a look at some of the super easy ways to reduce your Corporation Tax bill.

You may also be interested in Limited companies and Corporation Tax breaks: Part 1 - Building a pension pot

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