One of my clients (I will call him Dave) will shortly be commercially renting out a caravan on a country park. It was bought about 2.5 years ago for him to live in, by his Dad, on a HP agreement, with the priviso Dave repay the loan. His Dad died 2 years ago and the caravan has passed to his mum, the Finance Co are aware of this. All payments are up to date.
Technically Dave's mum owns it but Dave has made all the repayments to date.
It will be a Ltd Co, as Dave already has a VAT registered sole trader business (totally unconnected) and I'm wondering which is the best way to account for repaying the loan so that the Ltd Co can legitimately make the repayments. Can it become an asset of the business or does his mum rent it to him at a similar cost of the loan, or is there a better way?
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hi John
Some random quick thoughts (not considered in much detail yet and no research) and questions.
As is, the income wouldn't be Dave but his mothers as the caravan is owned by her.
What was the value at purchase, transfer from Dad estate to Mums and now? V. O/s on finance?
Can Dave officially take over the finance facility in his name or the company (suspect the latter is no)? Or could he take new a new facility?
Wondering if the mother would transfer the caravan over to him personally or sell to the limited, if the finance could be sorted? Depending on which may generate CGT for her, one option could transfer the gains over to him, but the ST/ltd is potentially muddying the waters. No opportunity for PPR.
If Mother charges him rent, then she has to declare that income on a SA, so that's messy.
Other issue is the caravan site owner and the agreement to rent the plot it's on- they will need permission and then I'm sure the site owner will want a cut.
Sure there may be other things.
Out of interest has he considered taking his existing business Ltd? Might be more logical reasons which may leave things better for sorting the caravan. (What is the income projected from hiring out?). Assuming there is absolutely no overlap of trades at all.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi John Some random quick thoughts (not considered in much detail yet and no research) and questions.
As is, the income wouldn't be Dave but his mothers as the caravan is owned by her.
What was the value at purchase, transfer from Dad estate to Mums and now? V. O/s on finance?
21k 20k 17k (last figure is an estimate) 16k o/s on finance.
Can Dave officially take over the finance facility in his name or the company (suspect the latter is no)? Or could he take new a new facility?
No on all counts
Wondering if the mother would transfer the caravan over to him personally or sell to the limited, if the finance could be sorted? Depending on which may generate CGT for her, one option could transfer the gains over to him, but the ST/ltd is potentially muddying the waters. No opportunity for PPR.
If Mother charges him rent, then she has to declare that income on a SA, so that's messy.
Yes thats my least preferred option for him, as his mum is retired
Other issue is the caravan site owner and the agreement to rent the plot it's on- they will need permission and then I'm sure the site owner will want a cut.
That's something I've yet to look into, and the main reason for him renting out. He's not living there now, but ground fees still need to be accounted for, plus the finance. The rental should cover both with a tiny profit. There are people renting out on the same park, so shouldn't be a problem.
Sure there may be other things.
Out of interest has he considered taking his existing business Ltd? Might be more logical reasons which may leave things better for sorting the caravan. (What is the income projected from hiring out?). Assuming there is absolutely no overlap of trades at all.
If it's a better option then yes. ST is Fencing Erector under CIS. Only reason for making caravan rental Ltd would be because otherwise he would have to allow for VAT on rentals, which would put it in a loss
PS Missed income. between 9-11k assuming 25 to 30 week let.
Just a thought but can Dave's mum gift the caravan to him, (I'm aware of the 7 year rule) or is that a no no whilst there is finance on it? Finance still has 4 and a bit years to go.
-- Edited by Leger on Sunday 27th of May 2018 11:31:07 PM
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hi John
The perils of answering lat at night (miss bits), although this morning isnt much better after desperately needing a lie in and the bloody bin men waking streets in a 2 mile radius up with their bloody whistling, singing and shouty chatting to each other, as well as the bind clanging on the truck!!!!! Bank holiday my a**e.
Anyway - more random/quick thoughts (just my own!)
- HP - so she cannot sell/transfer without paying off the debt. He cannot get funding.
- She is taxable already on the 'income' (or should I say property profit) from when he was living in the caravan. His repayment of the loan is deemed rent/informal letting. Only other issue then that they might have is that the deemed rent is not MV and he is a connected party and HMRC dont like that (and want proof it not below MV) and therefore any resultant costs would be capped to same level % at best/with no loss relief.
- You say she is retired, but do not mention her taxable status. Does she have any allowance left? Thinking might be better if she does the caravan rental - she will have to follow strict Holiday Let rules (availability dates, min 210, actual 105, blur blur etc for it to apply) but assuming this wouldnt cause a problem if he was living in it all year then that indicates the site can have folk living in all year (some sites only allow Easter to October, which then can prove difficult for the 105 days to be met given occupancy levels are not likely to be 100%). Plus bearing in mind that profitability probably wont be that great (its a very fine margin when its just one caravan and not your own caravan site! Have they done the numbers?). Also - will they be using it personally? (If Ltd and he does, then BIK implications)
- When I mentioned the site owner's permission I shouldve expanded to state from the 'limited' company point of view. Sites are happy to do so on the basis of individuals, just not sure how they will see it when its a Limited company (the might not be bothered)
- I was thinking there was potentially more logical reasons for making the existing business Ltd. Providing him with an element of liability limitation (especially as things appear to be looking up - him moving out of caravan, possibly into own property) then it might be worth re-visiting anyway. Putting one caravan into limited would with your fees probably just leave that almost permanently in a loss making position with no way of extracting any value (just my thoughts obviously)
- She cant gift the caravan to him without him taking over the finance (formally) or re-financing it or just paying that debt off as with HP there will be a charge over the caravan itself.
Sure Ive missed something out - had a whole pile of things whirling round my head earlier!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi John The perils of answering lat at night (miss bits), although this morning isnt much better after desperately needing a lie in and the bloody bin men waking streets in a 2 mile radius up with their bloody whistling, singing and shouty chatting to each other, as well as the bind clanging on the truck!!!!! Bank holiday my a**e.
Hi Joanne
You have bin collections on a bank holiday????
Flipping heck, I hadn't realised it was more complicated. I do a holiday let for someone else, so understand the rules there but not the complications when it isn't theirs.
Looks like it might be better for her to rent it out like you say? There's approx £400 a year profit after all deductions, not including repairs, based on a 26 weeks letting period. (Site closed Jan - Feb) Obviously if more than 26 weeks more profit because costs are fixed but its never gonna be a moneyspinner!! It won't be used by anyone connected.
Will need to look into previous arrangement but thinking aloud max market rent would be £400 a month against expenses of approx £300. Mum has owned property 7 months in one tax year and 7 months the next before he moved out (fell in love!!) so possibly falling below reportability threshold. I don't know her taxable status though.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Looks like it might be better for her to rent it out like you say? There's approx £400 a year profit after all deductions, not including repairs, based on a 26 weeks letting period. (Site closed Jan - Feb) Obviously if more than 26 weeks more profit because costs are fixed but its never gonna be a moneyspinner!! It won't be used by anyone connected.
Will need to look into previous arrangement but thinking aloud max market rent would be £400 a month against expenses of approx £300. Mum has owned property 7 months in one tax year and 7 months the next before he moved out (fell in love!!) so possibly falling below reportability threshold. I don't know her taxable status though.
Market rent, even for such a generally regarded lower value caravan (these days) should be at least £400 a week in high season (all school holidays, more £ in summer). Ive seen £800 for a weekend (although I consider that extortionate and its for a top of the range, huge van on a nice site in a good position, but I wouldnt pay it!). People who own one will be in it come rain or shine, but renting out ad hoc caravans can have huge voids. Does depend where the caravan is based.
Expenses that folk dont always get right - advertising and any agency commissions, but worse than that - the amounts being taken off them (Im being kind!) by the actual site owners (which can be more eye watering than they can imagine!)
But on £400 a year profit, I wouldnt think a 'Limited' would be worth it. Plus - is that tax profit? Repairs are pretty high, for items you cannot claim CAs, so I would suggest she looks at doing it herself, but suggest she gets her tax advisor/accountant (you if you take her on) to look carefully at the elections. As well as the issues for site closure. Try this if you havent seen it, although Im sure you have https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2017#period-of-grace-election
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Looks like it might be better for her to rent it out like you say? There's approx £400 a year profit after all deductions, not including repairs, based on a 26 weeks letting period. (Site closed Jan - Feb) Obviously if more than 26 weeks more profit because costs are fixed but its never gonna be a moneyspinner!! It won't be used by anyone connected.
Will need to look into previous arrangement but thinking aloud max market rent would be £400 a month against expenses of approx £300. Mum has owned property 7 months in one tax year and 7 months the next before he moved out (fell in love!!) so possibly falling below reportability threshold. I don't know her taxable status though.
Market rent, even for such a generally regarded lower value caravan (these days) should be at least £400 a week in high season (all school holidays, more £ in summer).
Sorry Joanne, I didn't explain that well., I meant £400 a month when Dave lived there as a residential "let", not a holiday let. Expenses are ground rent (which Dave has paid) small amount of interest on hp, and other incidentals.
Also I've just realised (thanks to your pointer) I've based holiday rental on actual costs and not taxable costs, so taxable profit is higher. As long as caravan is allowable as plant (will check tomorrow) its not a major increase though.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Sorry Joanne, I didn't explain that well., I meant £400 a month when Dave lived there as a residential "let", not a holiday let. Expenses are ground rent (which Dave has paid) small amount of interest on hp, and other incidentals.
Also I've just realised (thanks to your pointer) I've based holiday rental on actual costs and not taxable costs, so taxable profit is higher. As long as caravan is allowable as plant (will check tomorrow) its not a major increase though.
Hi John
Probably didnt read it right! Head is spinning from a few other things going on! I see what you mean as in income now.
Re the caravan as plant.....isnt this a 'Portia' moment?
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
There was something about CAs in the first link I gave you as well....if it stops being a FHL!
Edited to add - of course if you decide not, then the caravan contains other items which are considered plant, but I imagine she may well still be using the original items from fit out.
-- Edited by Cheshire on Monday 28th of May 2018 01:42:49 PM
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
moot point though if not being transferred surely (or if so, check connected parties, not sure if that would apply - still half asleep through lack of it!)
-- Edited by Cheshire on Tuesday 29th of May 2018 11:34:02 AM
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
moot point though if not being transferred surely (or if so, check connected parties, not sure if that would apply - still half asleep through lack of it!)
Agreed, I was looking at that aspect only if the mum was to do the holiday lets, although that's something Dave is reluctant to do. I'm going to crunch some numbers this week both ways and then let him decide which way he wants to do it.
I very much appreciate your help, it was more complicated than I realised, and you have helped me put it into perspective.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
