Can you assign your property rents to a company?

This is a hot topic at the moment, here is the scenario…

You own a Buy to Let property personally but want to assign the rent to a specifically created company which you own. You are a higher rate tax payer where as Corporation Tax is 20%.

You want to retain ownership personally. You can’t transfer the property to company because Capital Gains Tax and Stamp Duty would apply. Incorporation Tax Relief isn’t available.

Can the Rents be assigned?

Rents

There isn’t a tax rule that says you must lease a property at Market Rent, so in theory, you could create a lease to your company for a period to match the letting period the company will give to its tenant and charge the company a nominal rent.

There are some issues with this for example PIM2220

Unless the landlord charges a full market rent for a property (and imposes normal market lease conditions) it is unlikely that the expenses of the property are incurred wholly and exclusively for business purposes ( PIM2010).

Another potential problem is the mortgage which will be in the Landlords name, not the Company name, so the rent would have to cover the mortgage payments, which means it won’t help with the new interest restrictions coming in soon.

SDLT

This will be a connected party lease and subject to SDLT at market value but as the period will be short its unlikely that SDLT will be payable.

However (SDLTM17035), the renewal of a lease will not be treated as linked with the original lease at all for stamp duty land tax (SDLT) purposes if it can be shown (with appropriate evidence) to have been negotiated at arm’s length, for example if the original or earlier lease:

• expired naturally
• contained no right or compulsion of either party to renew and/ or
• was renewed following entirely new negotiations, as would apply to a new tenant.

Otherwise, where leases of the same premises are granted:

• between the same or connected parties
• to take effect one immediately after the other
• whether at the same time or not

these are successive linked leases for SDLT purposes, with tax calculated under the provisions of FA03/SCH17A/PARA5. Refer to SDLTM17040 for details.

Other Problem Areas

• The company will be a closed company so if it carried out improvements to the property these could be taxable benefits to shareholders
• Once the company has the rents and the profits how will you extract them tax efficiently

steve@bicknells.net