Dividends or Rent

[vorabj]

I make about £100K profits. The company occupies the business premises from me rent free.
Question is whether to start charging rent or take out dividends.
I could charge £20K rent which is like arms length or take the same in dividends.
Total Income at present is £10K (salary) and no other income.

Appreciate some advice. Accountant says either. Except a formal lease will have to be drawn.

[section 44]

who pays any costs in respect of the premises (e.g. utilities, maintenance etc) and does either you or the company claim a tax deduction for such costs?

[vorabj]

The upkeep and utilities are paid by the company

[vorabj]

All costs relating the premises are paid by the company and there is no mortgage on it.
(If there was a mortgage then Rent would be a better option so as to offset the mortgage interest payable against the rents receivable)

[section 44]

All costs relating the premises are paid by the company

does it claim a tax deduction for these costs (and, if so, why)?

[Ian McTernan CTA]

The question is one of income planning, and working out whether you would be better off taking out the income as rent or as taxed net profit (dividends) or salary.

There is also the issue of whether it would be better to transfer the property to the company, or another company (which then rents the property to your company).

A lot depends on your income requirements and your longer term plans.

You might also consider pension contributions from the company in to your personal scheme.

Your accountant/tax advisor and/or financial advisors should already be doing this for you- if not, it's probably time to switch.

[King_Maker]

Payment of rent could impact on Entrepreneur's Relief.

[vorabj]

Thanks to you all. It is more complicated than I thought.
The reply to section44, the company claims tax deduction because the cost is incurred wholly and exclusively in the course of its business. Should it not be claiming it?

[section 44]

the company claims tax deduction because the cost is incurred wholly and exclusively in the course of its business. Should it not be claiming it?

Given that the arrangements are not on arm's length terms, arguably the company is meeting your personal expense.

Another way of viewing this might be that by the company meeting these expenses of your's it is giving non-monetary consideration for use of the premises

[vorabj]

I note your comments, but don't understand the point about meeting my personal expenses.
This is a commercial property which the company occupies rent free and pays for the utilities it uses in its business (as well as maintaining the property).
How is it my personal expense.