Tax on Rental Income on Property bought thru a Company??!

WhyTheFace

Hi,

My brother bought a commercial unit through his company (vet practice). We put up 50% of the total each. I have no financial interest in his company.

The commercial unit is now generating rent. I am just wondering what the tax implications are?

Can my brother just transfer to me my share of the gross rental income and I declare it when filling out my end of year Form 11 or is it more complicated than that as there is a company involved?

Thanks

duffysfarm

is the rented property in the name of the company or is it half in your name and half in your brothers?

it is common to see companies buying property as they have the funds to do so rather than the individual but in a scenario where an individual and the limited company had the money to buy a property and i had to chose one i would strongly chose the individual over the limited company

DmanDmythDledge

Who is the registered and/or beneficial owner of the property? Sounds like it is the company so effectively you may have provided a loan to the company being half of the property cost.

Regarding the rental income, in all likelihood this is income of the company and taxed in the company. Do you have any shareholding in the company? Your rights to income from the property or company could be nil so getting money out to you could be awkward. In the first instance you could receive funds being the repayment of your loan but after that things get slightly complex.

Another thing to consider re the “loan” to the company, are you charging interest? That could be a way to get some of your money/investment back. If not, there could be capital acquisitions tax implications for your brother.

By the sounds of things this could be complicated enough. Also, as it’s an investment property there’s not much benefit purchasing it through a company. The tax rate is 25% and close company surcharge could increase the effective rate to almost 40%. Then potentially a double hit to tax taking the money out of the company. Purchasing a property via a trading company could also impact on CGT retirement relief or entrepreneur relief for your brother or other CAT reliefs if passing the business on in the future to a family member eg son/daughter

duffysfarm

DmanDmythDledge wrote: »

Who is the registered and/or beneficial owner of the property? Sounds like it is the company so effectively you may have provided a loan to the company being half of the property cost.

Regarding the rental income, in all likelihood this is income of the company and taxed in the company. Do you have any shareholding in the company? Your rights to income from the property or company could be nil so getting money out to you could be awkward. In the first instance you could receive funds being the repayment of your loan but after that things get slightly complex.

Another thing to consider re the “loan” to the company, are you charging interest? That could be a way to get some of your money/investment back. If not, there could be capital acquisitions tax implications for your brother.

By the sounds of things this could be complicated enough. Also, as it’s an investment property there’s not much benefit purchasing it through a company. The tax rate is 25% and close company surcharge could increase the effective rate to almost 40%. Then potentially a double hit to tax taking the money out of the company. Purchasing a property via a trading company could also impact on CGT retirement relief or entrepreneur relief for your brother or other CAT reliefs if passing the business on in the future to a family member eg son/daughter

agree with all of the above. I hope you took professional advice on how you handled this purchase for an ownership/tax point of view

148multi

duffysfarm wrote: »

agree with all of the above. I hope you took professional advice on how you handled this purchase for an ownership/tax point of view

Would rent be liable for vat

DmanDmythDledge

Optional on commercial property but if liable to VAT on purchase won’t be able to claim that back unless charging rent (putting the property to a VATable use). Also would mean can reclaim VAT on overheads/expenses if charged

WhyTheFace

DmanDmythDledge wrote: »

Who is the registered and/or beneficial owner of the property? Sounds like it is the company so effectively you may have provided a loan to the company being half of the property cost.

Regarding the rental income, in all likelihood this is income of the company and taxed in the company. Do you have any shareholding in the company? Your rights to income from the property or company could be nil so getting money out to you could be awkward. In the first instance you could receive funds being the repayment of your loan but after that things get slightly complex.

Another thing to consider re the “loan” to the company, are you charging interest? That could be a way to get some of your money/investment back. If not, there could be capital acquisitions tax implications for your brother.

By the sounds of things this could be complicated enough. Also, as it’s an investment property there’s not much benefit purchasing it through a company. The tax rate is 25% and close company surcharge could increase the effective rate to almost 40%. Then potentially a double hit to tax taking the money out of the company. Purchasing a property via a trading company could also impact on CGT retirement relief or entrepreneur relief for your brother or other CAT reliefs if passing the business on in the future to a family member eg son/daughter

Thanks for this information.

My brother owns the company, I have no stake in his company whatsoever.

It's a bit of a mess alright.

Any idea what the best move would be to take?

We bought the units 5-6 years ago and they have been empty up until now, however they have doubled in value.

Am I right in saying that only in recent years the tax rate increased from 12.5 to 25%?

Now that they are finally rented the yield is 26% but all seems pointless if we are going to be hammered with taxes from all sides.

La la lopsy

They asked who owned the property? The company ? Your brother? You? Not who paid what, who actually owns the property.

DmanDmythDledge

La la lopsy wrote: »

They asked who owned the property? The company ? Your brother? You? Not who paid what, who actually owns the property.

Yes because both are absolutely crucial for the tax treatment. Probably more important than the cash perhaps.

WhyTheFace

La la lopsy wrote: »

They asked who owned the property? The company ? Your brother? You? Not who paid what, who actually owns the property.

I transferred money into my brother's business account and the company bought them.

athlone573

What paper trail exists regarding your loan/investment/gift to the company

The company will have to pay tax on the rent surely

This is where your accountant makes themself useful.

relax carry on

WhyTheFace wrote: »

I transferred money into my brother's business account and the company bought them.

Is there anything on paper staying this was a business investment/transaction? Is there anything formal at all? It could look like a gift to your brother. What advice did you receive before undertaking this transaction?

hold my beer

WhyTheFace wrote: »

I transferred money into my brother's business account and the company bought them.

That's just a loan from you to the company