Where a personal company is run from the director’s home, the payment of rent by the company for the use of the space can be a handy way of extracting profits. However, to avoid HMRC scrutiny, the rent should be set at a commercial level.

Company’s position

The company can deduct the rent paid in calculating their taxable profits for corporation tax purposes.

The director’s position

If the home is owned solely by the director, they will be taxed on the rent received. However, where property is jointly owned by spouses or civil partners, the rent will be treated for tax purposes as if they had each received 50% of it.

The rent is taxed under the property income rules and must be reported on the property pages of the Self-Assessment tax return.

It should be noted that the property allowance is not available where a person receives property income from a company that they own or control or which is owned or controlled by someone connected to them. This means that any rent received from a personal company will be taxable unless sheltered by the personal allowance, even if it is less than £1,000.

Where the director has rental income from other properties owned in the same capacity, the rent from the personal company, together with any associated expenses, must be amalgamated with the income and expenses from the other properties (including any holiday lets) to work out the taxable profit for the property business as a whole.