You Can Offset Your Personal Rent or Mortgage in Your LTD Accounts – But Should You?
At Venn, we frequently encounter questions from LTD company owners about whether part of their personal rent or mortgage can be claimed in company accounts. Here’s a simplified guide to help you understand the basics and considerations involved in this practice, specifically for limited company owners.
Using Personal Assets for Business
For limited company owners, it’s common to operate from home or use personal properties for business purposes. If you’re renting out part of your home or property to your company, you’re engaging in a property business from a tax perspective. This means you’ll be subject to the usual property income tax rules.
Tax-Free Allowance
As a limited company owner, you have the option to claim a tax-free allowance from your company to cover the costs of working from home. This can be an alternative to charging rent. That said, the amount is £6 per week, which hardly feels generous.
Tax Efficiency of Rent
Renting part of your property to your limited company can be a tax-efficient way to extract profits. The rent your company pays is usually deductible for corporation tax purposes and doesn’t attract National Insurance liabilities like salary or bonuses do. However, you’ll need to adhere to standard property business income rules for income tax.
Important Considerations
Tax-Free Property Allowance: The £1,000 tax-free property allowance doesn’t apply if the rent is paid by your employer or a close company related to you.
Market Rent: Always charge a market rate rent to ensure compliance and avoid issues with tax deductibility.
Formal Lease: Draft a formal lease agreement to outline the rental terms clearly.
Principal Private Residence Relief: Renting out part of your home can affect your entitlement to this relief on the sale of your property. If the rented part is used exclusively for business, you may lose this relief on that portion of your home.
Business Asset Disposal Relief: If you charge full market rent throughout ownership, you may be denied this relief.
Other Non-Tax Considerations: Ensure you address non-tax issues such as mortgage provider permissions, adequate insurance coverage, and potential business rates.
Summary
While renting part of your personal property to your limited company can offer some tax efficiencies, the potential downsides, such as losing relief on your principal private residence and other tax and non-tax considerations, often outweigh the advantages. Therefore, many limited company owners may find it more beneficial to avoid this practice. Always ensure compliance with relevant rules and regulations and seek professional advice tailored to your specific circumstances.
