Living in house that belongs to company - is it Benefit in Kind?

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Rebeccaf55

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Hi

Myself and my siblings are directors of a ltd company that owns a property - my brother and my mam are both living there. My mam has been told that she needs to pay benefit in kind to the company in order to live at the property - as she is not an employee or directly involved with the company can she not live there tax free?
 
Rebeccaf55 said:
My mam has been told that she needs to pay benefit in kind to the company in order to live at the property -
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Told by whom?
An individual doesn't pay benefit in kind - they receive it and might be assessed for income tax on it.
Did whoever told your mother this mean that she should be paying rent? Or paying tax on the benefit on kind attributable to the free accommodation?
 
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the main question really is can my mam and brother live at the property without paying tax or rent while it belongs to our ltd company?
 
The taxation of family companies is a complex affair and you really need to talk to an accountant who knows all the details of your family company. But I think what's going on here is:

- The limited company is a "close company" - i.e. a company owned/controlled by shareholders who are related to one another.
- There are various rules in place to prevent close companies being run in a way that seeks to evade or avoid tax. In particular, if value is transferred from the company to a shareholder or to an associate of a shareholder, that tends to get taxed in the hands of the recipient as if it they had received a dividend from the company, even if the transfer of value isn't actually structured as a dividend.
- Your mother and brother are getting free accommodation in a house that neither of them owns. That's a transfer of value; the value transferred is the amount of rent the company would get if it let out the house in an arm's-length transaction at the market rent. Your mother is getting 50% of that transfer.
- I assume your mother is either a shareholder in the company or an associate (family member) of a shareholder.
- Therefore, the concern is, your mother is going to be treated as receiving a dividend every year equal to 50% of the market rent the house would fetch. (Also the company needs to pay dividend withholding tax on the same amount, for which your mother will get a credit.)
- She can avoid this by paying the market rent for the house, which is what is being suggested.

Another possibility that could be explored would be for your mother to become a director of the company, but this is not something to be done lightly — directors have serious duties, responsibilities and potential liablities.

Talk to the accountant that looks after the company's tax affairs. If the company hasn't been getting professional tax advice up to now, then it's time to start getting it.
 
TomEdison said:
Another possibility that could be explored would be for your mother to become a director of the company, but this is not something to be done lightly — directors have serious duties, responsibilities and potential liablities.
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But this would not reduce the tax burden, would it?
 
Brendan Burgess said:
But this would not reduce the tax burden, would it?
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I am straying beyond my competence here. But provision of benefit in kind to a director is not a deemed distribution for a close company. I think.

But, yeah, it probably is going to be taxed as, well, a benefit in kind that she gets on account of being a director. The OP indicates that concerns have been raised only about the mother's position. But that may reflect not that the brother is getting the accommodation tax free, but rather than he is being taxed on it as part of his director's earnings and everybody undertands and accepts this.
 
TomEdison said:
than he is being taxed on it as part of his director's earnings and everybody undertands and accepts this.
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OK, interesting point.

@Rebeccaf55

If your brother is declaring the rent for the whole house as BIK, then I imagine that his mother is living with him in "his" house and it would not be a problem for her.

But if he is declaring only half the rent as BIK and she is declaring nothing, then you would need to address it.

Talk to your accountant.
 
Rebeccaf55 said:
Myself and my siblings are directors of a ltd company that owns a property - my brother and my mam are both living there.
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The bigger issue is why does the company own a residential property.

It was probably conceived as some sort of idea to save tax. It's a terrible idea and you should get professional tax advice on how to unwind it.
 
From Revenue

"

Other third party benefits​

Other third party benefits are also generally taxable. These will not be taxed as a benefit in kind if all of the following apply:

  • The third party provider of the benefit is not connected to you, either directly or indirectly, in any way.
  • There is no arrangement or scheme in place between the third party provider and you, or anyone connected with you.
  • You have not paid any amount, either directly or indirectly towards the benefit."
also read


"3.1.2 Employees and DirectorsThe BIK provisions contained throughout Part 5 Chapter 3 TCA 1997 apply to bothemployees and company directors. In addition, section 120 TCA 1997 provides thatthe rules which apply to an employee of a body corporate, equally apply to anemployee of a sole trader, a partnership or a public body.

The definition of an employee or director for the purpose of the BIK provisions isvery broad, and employers may be obliged to deduct tax on any BIK provided to the spouse, civil partner, family, children of the civil partner, dependants or guests of an employee or director etc. - see s116(2) TCA 1997.
 
"It was probably conceived as some sort of idea to save tax."

Unlikely. The alternative is usually between a company buying a house for (say) a million euro, and the company distributing the million to a director/shareholder who pays half of it in tax and uses the other half to buy a house worth half a million.

Many people are quite happy to live in a house worth double of an alternative, even if that involves ongoing taxes and complications.

"It's a terrible idea and you should get professional tax advice on how to unwind it."
It is not always a terrible idea but I'm not a massive fan of it myself.
 
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