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Sam
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I have a client who owns the freehold of the property which

Resolved Question:

I have a client who owns the freehold of the property which he uses for business but pays no rent.
The freehold is being compulsory purchased by the council and a solicitor has said that a way to prevent this is for our client to draw up a lease to rent the premises to his company for a 20 year term at rental of market value.
The problem is that market value is around £200,000 to £250,000 per annum and the tax on our client would appear to very high although the company could offset the rent as an expense and save tax at 20%.
Is it a possibility if they drew up the lease but the company did not pay our client personally for the rent and it just accumulated or would our client pay tax on rent receivable and not rent received.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
Sadly your client would pay tax on rent said to be receivable - although as you quite rightly advise, this can then be offset as rents paid by the company (as long as those rents are physically paid)
If the rents are not physically paid, then they cannot be offset as an expense but HMRC would still treat this as rents due.
The only way around this (for tax purposes) is for a peppercorn rent to be paid for the use of the property by the company (so the tax due is low, as is the amount of expense that can be claimed as rents paid) - BUT whether this then alters the legal position with the compulsory purchase, you would need to go back to the solicitor and enquire.
But the paper trail has to stand up all round.
Thanks
Sam
Customer: replied 2 years ago.

Thanks very much Sam.

In what circumstances can a peppercorn rent be paid though?

Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
Under any circumstance, as long as it does not breach the position within the Inheritance tax rules (which then alters a property from being a potentially exempt transfer to one of reservation with benefit) which this does not !! (so I will not elaborate!) then from HMRCs point of view rental income paid/received is accepted at face value (as long as all the payments made and received tie in with what the lease states)
Then you only have the legal aspect to consider, whether this would suffice for blocking a compulsory purchase.
Do feel free to ask any further follow up questions on my response, but if, in the meantime you could rate/accept the response, this will ensure that I am credited for my time
Thanks
Sam
Sam, Accountant
Category: Tax
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Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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