Enter Your E-mail

Where a business is based at home or at another property owned by the director personally, it is possible to extract profits in the form of rent paid for the use of the home office or other premises.

Although the rent is taxable in the hands of the director, there is no NIC to pay. Further, the company can deduct the rent in computing its taxable profits for corporation tax purposes.

If the director/shareholder has losses from other property rentals, paying rent will enable those losses to be mopped up. This is because losses from a property rental business can only be offset against profits from that business.

Where rent is paid by a company to a director, it is advisable to draw up a rental agreement between the director and the company.

Example:
David is a director and shareholder in his family company, which is run from his home. The company pays him rent of £400 per month for the use of the home office.

David also has two properties which he rents out. In the tax year in question he makes a loss on those properties of £5,000. The rent from the family company is taken into account in computing the profits or losses of the property rental business and the rent of £4,800 received from the company is offset against the loss of £5,000 from the other properties to give a net loss of £200.

As the rent paid to David by the company is offset by other property losses, David pays no tax on it and is able to utilise the property income losses from his other properties.

The company enjoys a corporation tax deduction of £4,800 in respect of the rent paid to David.