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The Hokey-cokey

Trust tax to make something complicated when it ought to be simple. If you run a business through a company, and you are thinking of buying some business premises, it surely ought to be simple to decide whether the company should buy or you should buy. Sadly, it isn't. It's like the hokey-cokey: in, out? In, out? Shake it all about? There are some attractive reasons for owning the property outside. If it goes up in value, you only get charged once on any gains - if it's in the company, the company will pay corporation tax on a gain, and you'll pay more tax when you pay the profit out to yourself. You'll also get full business assets taper relief against a personal capital gain if your company is a trading company. If you are concerned about inheritance tax, though, it's better to own the property in the company. Shares in unquoted trading companies - in this case, higher in value because of the property inside - get 100% relief from IHT. A property owned outside only gets 50% relief, and then only if you control the company. One of the most important issues - and one which is often forgotten - is VAT. If it's a new commercial freehold building, or the previous owner has chosen to charge VAT on the sale to you, you will want to recover that VAT. It's likely that your company will be able to recover it if the company makes the purchase, but you could only recover it yourself if you established 'renting to the company' as a separate VAT-registered business in its own right. That's a step too far for most people - and the VAT Tribunals have seen a few cases where people tried to short-cut it and failed. So, if you are thinking of buying business premises, it's worth looking at all the tax angles. We will be happy to advise you. There are problems for tax whether you put a building into a company or leave it out. In summary, if you put it in: * you can enjoy business assets taper relief on the higher value of the shares in the company, if the company is a trading company, but any gain made by the company itself will be subject to corporation tax in addition to the tax charge on you on the increase in value of your shares; * you can enjoy 100% business property relief for the value of the building reflected in the value of your shares; * if you borrowed money which is introduced into the company to fund the purchase, the interest will be deductible from your general income; * it is usually straightforward for a VAT-registered company to recover the input tax on the purchase of the building and on associated expenses. If you leave it out: * you only suffer a single charge to tax on gains, and you will enjoy business assets taper relief from April 2000 onwards if the company trades; * you can only enjoy 50% business property relief, and then only if you (together with your spouse) control the company; * if you borrowed money to buy the building, you can only set the interest against rental income paid by the company for the use of it; * it is much more difficult to recover the input tax on the purchase of the building and on running costs.