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Green Building Bible, Fourth Edition
Green Building Bible, fourth edition (both books)
These two books are the perfect starting place to help you get to grips with one of the most vitally important aspects of our society - our homes and living environment.

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    Not sure if anyone can help...

    My wife is self employed and operates her retail business from a commercial premises we own outright. We bought it by remortgaging the house.

    We can't see an accountant till early January but from what I understand we can't claim the purchase of the building as an expense?

    So, as we're not paying rent either we obviously can't claim any expenses for that.

    Does anyone have any insight about the most tax efficient as if we were renting we could claim ~10k expenses.

    Maybe remortgage the shop and I think the interest is an allowable expense?

    Any pointers appreciated
    • CommentAuthorgoodevans
    • CommentTimeDec 15th 2018 edited
    Would I be correct in assuming there is no limited company involved here (many people state they are self employed but work through a Limited company). Assuming true self employed and the commercial premises is in your names...

    My guess is that if the owners of the commercial premises (both of you) charged the self employed person (your wife) it would mean that there is Tax to pay on the rent received (leaving you no better off).

    A limited company could be set up to own the commercial premises - if you the directors lent the company the money then rent collected on the premises could be paid back to you tax free until the loan was paid off (and possibly some interest besides). In the long term however it would be the company that ends up owning the premises and when you come to liquidate the asset, tax will probably be payable at this point. (However you will have capital gains tax on the difference between the sale price and the purchase price as it is not a dwelling that is / or has been your main residence).

    Another route perhaps is to have a Self Invested Personal Pension own the premises in the form of a Self Invested Personal Pension (SIPP) (If your pension can be liberated in this way) - The SIPP expects that a fair rent be paid, and I expect when you no longer want the property it can be sold and the cash returned to the pension fund in a tax efficient manner.

    There are so many ways that if you have the money/funds you can reduce your tax bill - But I think many of your options are cut out by not using companies or other vehicles to separate your personal and commercial tax affairs.

    If you are prepared to do your own paperwork it only costs £13 per year to run a limited company.

    But don't rely too much on my advice - I'm just an IT guy that hasn't really worked much in the last few years.
    • CommentTimeDec 15th 2018
    What you are asking is a bit of a circular agrument.

    You have done two things;
    1. Bought and investment property which you could rent out for say £10k
    2. You operate a business from a property where the rent would be £10k.

    So if you charge rent, unless its in a pension, you will be in pretty much the same tax position.
    Putting the property in a company will make little difference as the income in the property company will be liable to corporation tax.

    There are, however, a couple of things you can consider;
    1. If you increased your domestic mortgage to buy the commercial property and you can show that you should be able to claim the interest on the additional loan as an expense of your wife's business. So long as the additional loan was for business purposes you should be ok.

    2. Capital Allowances. You can claim capital allowances on a commercial premises. When you bought the premises a s198 election would show the capital allowances carried forward to you (if any).

    I suggest you get an accountant, they will save you more than they cost you.
    move as much of your debt onto the commercial property as you can via a commercial buy to let mortgage, that way interest on that debt is an allowable expense against any rental profit.
    • CommentTimeDec 15th 2018
    Moving debt to the commercial property may seem like a good idea except you will find it hard to get a commercial loan at the low rates available on domestic properties.

    The additional cost will most likely exceed any tax benefit.
    • CommentAuthorgoodevans
    • CommentTimeDec 15th 2018
    I just looks at some s198 election documents - Its so far beyond my comfort zone I'll bow out at this stage - treat my post above with even more scepticism.
    • CommentAuthorArtiglio
    • CommentTimeDec 16th 2018
    A good few years back, i was able to offset the interest on my domestic mortgage against my rental income. The argument my accountant used was, that all the financial risk was mine, by using borrowings from my own residence to fund the rental property, i was effectively borrowing at a lower interest rate, as a result the expense claimed was reduced and as such was a benefit to the taxman as it meant my tax bill was a little higher.
    Wether the same argument is still applicable i don’t know, but worth looking into.
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