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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15749
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I own boutique hotel and last few years the accountant

Customer Question

I own boutique hotel and for the last few years the accountant has advised me to take the building which comprises most of the value out of the business as she says I will be able to claim entrepreneurs relic on it when I sell. Is this correct ?
However it also means she doesn't claim my large business loan interest or repayment aginst the corporation ta . Instead she declares these as my dividend and I have to pay tax on that !
Is this right. A friend of mine who runs a much bigger company says it is wrong advice. Thanks Tim
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Is your business run through a limited company and, if so, does the company own the building? Is the company the borrower?
Customer: replied 1 year ago.

The business is run through a limited company. Turnover around 450,000 net. Business loan is 750,000. I pay£ 4100 per month. Just for business loan. But at present accountant declares it as a dividend so I pay tax on it. It makes it difficult for me to take money out without a large tax bill.

Expert:  TonyTax replied 1 year ago.
Thanks.

Who owns the premises, you or the company? Whose name is ***** ***** in, yours or the company's?
Customer: replied 1 year ago.

I own the building. The company used to own it a few years ago before accountant took it out of the company. The loan is now in my name. Value of whole business including building is around 2 million.

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 1 year ago.
I'd be interested to know how the premises was removed from the business and how you paid for it.

You said in your question that your accountant had advised you to "take the building which comprises most of the value out of the business as she says I will be able to claim entrepreneurs relief on it when I sell. Is this correct?". In your last post, you said that the you own the building personally so as far as I can see, if it was owned by the company, it no longer is. There is a contradiction there.

You can read about entrepreneurs' relief here. ER allows you to sell assets used in a business and to pay a lower rate of Capital Gains Tax, 10%, as opposed to the regular rates of 18% or 28% or a combination of the two rates.

As the owner of a limited company, your business asset is the shares you own so if you sold your shares, you could claim ER on the capital gain subject to your meeting the qualifying rules. That is the only way you can benefit from ER if the company owns the major business assets such as the premises (but see below) and goodwill.

A company cannot claim ER. If the company owned the premises and it sold them, it would pay corporation tax on the profit. You would either extract that money as a dividend leading to a massive personal tax liability or you would go through a formal liquidation of the company to try to extract the money as a capital payment on which you could claim ER. You could also sell your shares and claim ER as I said at the start of this paragraph.

If you personally own an asset which is used in a business, you could sell it and claim ER. Many people own the business premises which is used by their company personally and charge rent for it but that will affect the amount of ER that could be claimed if the premises was sold by you. However, if you sell the premises, you would need to rent them back to run your hotel but you may have rid yourself of the loan.

You should be claiming relief for the interest paid on the business loan against your income.

I hope this helps but let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15749
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

I don't even charge rent for the premises. My friend who owns a similar but larger business has the building within the company. He claims the interest against corporation tax. And also the capital repayment somehow is balanced against the equity. Not sure about how.

It seems crazy for me to be paying tax on this big payment instead of claiming it against tax. Also I still don't fully understand whether it is best to keep the building in or out of the company.

A few years ago she used the directors loan coupled with my divorce when my wife gave her share to me in the settlement. . I think I need a new accountant. Can you advise me on this.

Expert:  TonyTax replied 1 year ago.
I'm not allowed to take on clients via this site I'm afraid.

You ought to consult your friend's accountant who can look at the figures and implications of putting the property back into the company. The lender will need to be consulted too. Recommendations by others in business are the best way to find advisers.

If the company started paying you rent, that would limit your claim for ER if and when you sell the property but you could offset the interest against the rent for tax purposes, negating the need for dividends to service the loan. The company would get tax relief for the rent it paid you too.

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