Option to tax and connected party

[spike418]

Good morning all.

The situation is that a husband and wife own a derelict commercial building.
They intend to vat register, opt to tax and refurbish the property as a commercial building.
The building will be let to a limited company who will be operating their trade consisting of both vatable supplies and vatable services.
The company is owned 100% by the husband and wife, but will not initially be vat registered. Although long term it probably will.
It is my understanding that because the company is making vatable supplies the option to tax will not be disapplied.
There are significant non tax reasons for the tenant trade being operated by a company. It would be prudent from an insurance perspective.

My main concern is the amount of rent to be charged by the husband and wife to the company. I accept that it must be more than a nominal amount but does it have to be market value?

[les35]

The connected party anti-avoidance issue applies where there are exempt supplies which the tenant makes. Where the rent is below market price, the more general anti-avoidance provisions would need to be considered. These are complex, and Sch 11A is the starting point. Although I would be surprised if they will apply in the situation you describe, I do suggest you have someone look at it more formally, so you receive clear written guidance.

[Lavender2306]

Good morning all.

The situation is that a husband and wife own a derelict commercial building.
They intend to vat register, opt to tax and refurbish the property as a commercial building.
The building will be let to a limited company who will be operating their trade consisting of both vatable supplies and vatable services.
The company is owned 100% by the husband and wife, but will not initially be vat registered. Although long term it probably will.
It is my understanding that because the company is making vatable supplies the option to tax will not be disapplied.
There are significant non tax reasons for the tenant trade being operated by a company. It would be prudent from an insurance perspective.

My main concern is the amount of rent to be charged by the husband and wife to the company. I accept that it must be more than a nominal amount but does it have to be market value?

Let's establish the facts: a couple owns a commercial building which they intend to let to a Ltd co and they are 100% shareholders of that company? The company is not VAT registered.
If this is the case, then the option to tax will be disapplied. The reason: the grantor, the couple, and the Ltd co are connected persons. And the Ltd co is unregistered. So the amount charged is irrelevant here.
If the Ltd co registers for VAT then the option to tax will have effect.