Re: uk ltd company. home office

John Boyle wrote:

In message <IiGni.19$By5.0@xxxxxxxxxxxxxxxxxxxxxxxxxx>, Ronald Raygun
<no.spam@xxxxxxxxxxxxxxxxxxxxx> writes
Of course, if (say) you were using 10% of the house for business
purposes, then only 10% of any capital gain would be liable to CGT.

And it would follow that Business Asset relief would be allowable on
that.

[*] If you are getting rent, you would need to pay income tax on it,
after deductions for mortgage interest, insurance, etc.

But the business would be able to offset the rent. Net position = 0
unless the business was owned by a sole trader paying tax @ 40% and
there was a joint owner of the property paying tax at a lower rate.

I'm not sure a sole trader *can* pay rent to himself. He can't,
for instance, employ himself, I gather. Or maybe it would merely
be unwise.

If he could pay himself rent, then "net position = 0" would not be
true, because the position would be neutral only with respect to
income tax. However, if the business is making enough profit for
C4NI to be payable, then renting would increase the business's
expenses, reducing its profit and hence both his IT and NI bill,
while the rental income would increase his IT bill but not his
NI bill. Paying himself rent would therefore be an NI avoidance
mechanism.

The context here, though, is that the business is a Ltd Co.

If the company pays him (or him and her, an equal-share co-owner
of the house) rent, income tax would be payable at 40, 31, 25, 20;
22, 16, 11; 10, 5; or 0%, depending on what mix of higher, basic,
starting, or nil rate taxpayers they are.

If the company doesn't pay them rent, it has to pay 19% corporation
tax on the extra profit, and if the 81% net profit remaining is then
paid as dividends to him as sole shareholder, he'd have to pay 25%
DIT on it (amounting to 20.25% of the rent not paid) if he's a HRTP,
which leaves him only very slightly better off than if the rent had
been taxed at 40% (keeping 60.75% of the rent not paid, as opposed to
keeping 60% of the rent paid).

If he as sole shareholder is not a HRTP, he gets the full 81% of
the rent not paid, which leaves them better off unless the co-owner
is a HRTP or they are both basic rate taxpayers.

If they are equal joint shareholders, then if they are both HRTPs,
again they'd be better off not renting, as they'd keep 60.75% as
opposed to 60%.

If only one is a HRTP, they'd pay 12.5% DIT, keeping 70.875%, and
they'd be better off not renting. If they're both BRTPs, they keep
81% and again would be better not renting.

If at least one of them is a starting-rate- or non- taxpayer, and
the other is not a HRTP, they'd be better taking the rent, as they
would keep, depending on mix of status, 84, 89, 90, 95, or 100%
of the rent.

.

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