Renting off my company

[Fenfog]

I want to start a rental company, but the first office I’ve seen, it makes sense for my other company to rent office space off them, it would work out about a 3rd of the building.

My plan was to start another ltd company, as this would be in theory my pension pot, and I’d want it to carry on after the first company closes, hence not buying the house by original company

I have been advised that this could open me up to ‘associated company rules’ and my corp tax relief (to 50k) would be halved between two companies

The two companies have different aims, one is an architect company and the new one would be ‘commercial property rental’

The shared corp tax relief would effect me quite a lot so I’m just wondering if anyone could shed some light on this or have other ideas
Much appreciated

[bd6759]

Companies are associated if they are under common control. All companies that you own, regardless of the nature of their business, will be associated.

[Taxfirst]

You're absolutely right to be mindful of the associated company rules, particularly since the main rate of Corporation Tax is currently 25%, with marginal relief available where profits are between £50,000 and £250,000. These thresholds are shared between associated companies, which HMRC defines as companies under common control, either directly or indirectly.

In your case, if both the existing architectural company and the new rental company are controlled by you, then they are likely to be considered associated. As a result, the £50,000 lower limit for marginal relief would be split, reducing it to £25,000 per company. This could lead to a higher effective tax rate on profits that would otherwise benefit from the full marginal relief band.

Here are a few points to consider:

Genuine Commercial Purpose: If there’s a clear commercial rationale for having two separate companies (which in your case there seems to be), this helps from a structuring and HMRC perspective, even though it doesn’t change the associated status for tax thresholds.

Ownership Structure: If you were to involve a different shareholder or use a family trust or pension (e.g. SSAS or SIPP) in the property company, it may help separate control, but this is a complex area and requires specialist tax advice to ensure it's both compliant and effective.

Group Structure: Depending on your long-term strategy, it might be worth exploring whether a group structure (with a holding company owning both subsidiaries) could provide efficiencies, especially around intra-group transfers and losses. However, this would not change associated company treatment unless control is separated.

Pension Planning: If the new company is intended as a form of pension provision, you might also want to explore how a SIPP or SSAS could purchase the commercial property instead. This would ring-fence the asset and any rental income in a tax-advantaged environment, and avoid associated company implications.

Given the potential Corporation Tax impact, it would be advisable to run some forecast scenarios for both companies’ profit levels to assess the tax effect. You might find that the practical difference is minimal depending on projected profitability.