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Director charging Rent to Limited Company

  • 03-07-2014 4:31pm
    #1
    HcksawJimDuggan
    Registered Users, Registered Users 2 Posts: 394 ✭✭


    If a limited company enters a formal lease for say, 9 years, to trade from the premises of a director, is there any company law or tax rules (ignoring VAT on Property) which state that the market value must be charged by the director if the company continues to operate the trade from the premises once the 9 years lapses. Or can the company continue to operate the trade from the premises rent free?

    Answer be as simple as it seems but just looking for your thoughts on any issues it may cause...


Comments

  • #2
    Alan Shore
    Registered Users, Registered Users 2 Posts: 735 ✭✭✭Alan Shore


    Normally transactions betweens connected persons will have market value applied to them.

    Certainly a director could not charge over market rent to a company but I have not come across any issue with a director charging under market rent to their own company other than clearly the director will not get a deduction for any interest paid on loan on the property.


  • #3
    dbran
    Registered Users, Registered Users 2 Posts: 2,094 ✭✭✭dbran


    A director acts in a fiduciary capacity to the company and as such would need to declare his interest in the transaction to the other directors of the company. I understand that certain property transactions may need to be approved by special resolution of the company's shareholders.

    The revenue would challenge it if there was no commercial reality to the transaction and it was being entered into purely to avoid tax.

    If the director charges rent to the company then the director will be subject to tax on that rental income. So it would be the same as the director was increasing their salary. However if for example there were Case V rental losses available and you were trying to use this as a method to extract money from the company you would need to be sure that you were charging the market rate.

    This is something that you should be talking to your accountant about really.

    dbran


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