Capital Gains on Commercial Unit Rent?

S

Skydyed

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I'm hoping someone can point me in the right direction on a capital gains question?... Long-story-short =

My small business has all but collapsed due to the recession. I sold my home and moved to a one bed apartment to prop up the business and try to save jobs, but the money ran out and I eventually had to let everyone go, I now have sold every piece of equipment to pay debts.

All I have left is a registered company that isn't earning anything and a mortgage-free industrial unit that can't be sold in this economic climate. However - I now have a chance to rent it...

The question is, if I rent the unit for €15k how much capital gains or other taxes has to be paid on it? This was supposed to be my income but the auctioneer says I'll lose 40+ percent as capital gains being 'unearned income' plus possible other taxes. If I put it through my company there doesn't seem to be much of an advantage as I'll still have to draw it out as salary and pay all the usual PRSI/PAYE/Levies.

Has anyone any experience on how much a landlord gets to keep of the rent he charges for a commercial premises?

Sorry to ask but my accountant is away for six weeks on a golfing holiday and, while I promise I won't take anything you post here as advice, I'd like to have an idea what I'm letting myself in for.
 
who owns the building, you or the company?

If the company owns it, it will pay tax on the rent at 25% and then can either pay dividends out to you (on which you'll pay income tax) or salary. The company won't get a tax deduction for the dividends and only a small amount for salary, but if it doesn't pay dividends it gets slapped with a "close company surcharge" which is effectively another tax on the net rental income of 15%.

If you own the building, you just pay income tax on it at your normal rates (and if you have no other income, this means €36,600 at the lower tax rate, plus prsi & levies).

Capital gains tax only comes into it if you charge a premium on the creation of the lease.
 
I actually own the building myself. At the moment it's completely empty and, without social welfare entitlement, it will be my only revenue.

I was thinking of letting my company rent it out (it's an African church who are not VAT registered and my business has been VAT deregistered) so they won't have to pay VAT. I can then withdraw the money from the company as "directors loan withdrawn" (the company still owes me the money from the sale of my home so I won't need to pay PAYE/PRSI/Levies).

I am personally VAT registered (when I bought the building I registered to defer payment of the VAT and so have to remain registered until I pay them back when the building is eventually sold) and so would have to charge VAT to the church and then pay PAYE/PRSI/Levies. I'm assuming the 25% tax on rent by my company would still apply even if I personally own it?

Finally, I thought capital gains was due on all the rent after minor allowances (being unearned income) - not just a premium payment?
 
Skydyed said:
I actually own the building myself. At the moment it's completely empty and, without social welfare entitlement, it will be my only revenue.

I was thinking of letting my company rent it out (it's an African church who are not VAT registered and my business has been VAT deregistered) so they won't have to pay VAT. I can then withdraw the money from the company as "directors loan withdrawn" (the company still owes me the money from the sale of my home so I won't need to pay PAYE/PRSI/Levies).

I am personally VAT registered (when I bought the building I registered to defer payment of the VAT and so have to remain registered until I pay them back when the building is eventually sold) and so would have to charge VAT to the church and then pay PAYE/PRSI/Levies. I'm assuming the 25% tax on rent by my company would still apply even if I personally own it?

Finally, I thought capital gains was due on all the rent after minor allowances (being unearned income) - not just a premium payment?
Click to expand...

I dont understand how your compnay can let it out
Do you personally let it to the company and they sublet as it is your asset

also in regard to vat issue did they not change that in last few years i think 08/09- i recollect that you could have reclaimed the vat and them paid vat on rental income which was normal

but to stop people from not repaying the vat they put a time limit for it to be repaid regardless of it being let out

eg recliam vat 70k in 2004 for example and repay say 10k since them 60k os, i taught you have a certain amount of years to repay the balace say 2014 for example which would mean 15k a year till 2014

does above make any sense to anyone
 
I think it's important to keep things simple here.

You own a building personally.
You should let the building personally to the tenant.
This rent will be taxable income for you, but if it's your only income, it won't bring you into the tax net.


You can't just put the rent into the company.
It's not theirs - it's yours.

If you have a company which owes you money, you should keep it as a shelf company until you can find some way of using it to make a profit. It can used the retained profits to repay the loan.

However, this is very complicated. You need a new accountant. A sole practitioner should not be going away for 6 weeks at a time without making provision for dealing with urgent client issues. It is also odd that he is away at the end of the tax year.

brendan
 
Most of his client tax years fall mid year apparently and he's back in a fortnight after the rental agreement has to be signed. It would therefore appear not everyone is as badly affected by the recession.

As for the company renting out the property I own, well that can easily be overcome by my charging my company one euro rent and allowing them to sub-rent. I wouldn't necessarily consider this to be an issue.

The reason I was thinking this way is because I can draw the rental money back out of the company tax free as it's a loan returned and, god forbid anything goes wrong, the company has limited liability.
 
Agree with Brendan, its very unfair that there is no one in your accountants practice who can answer your question.
You own the property in your own name so the rent is subject to income Tax under Schedule D Case V.
Rental Income less any expenses Insurance rates loan interest. If your only income is €15,000 less some expenses you will pay 20% and PRSI 3% less tax credit €1830.
If you let it to the company for €1 and the company rents it for 15000 then the company will pay 25% on Schedule D Case V and then a 20% Close Company Surcharge for undistributed investment income. Effectively 40% Corporation Tax.
Your best bet is to rent it yourself to the tenant.
Regarding the VAT you recovered it and then waived your exemption on short term lettings and charged VAT to the tenant. You have to charge VAT to the tenant or compute a cancellation adjustment as you have suggested. This can not be avoided by letting to your company for €1.
 
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