If you own a building personally and your company uses it, rent the company pays you is your property income, taxed at your Income Tax rates, and the company deducts it as a business expense provided it is no more than a commercial rent. Charging rent has a cost later: it can reduce Business Asset Disposal Relief when you sell the building alongside your shares, although it does not affect the 50% inheritance tax business relief available for property used by a company you control.

Why would you own the property and let it to your company?

Many owner managers keep the business premises outside the company. It protects the building from the company’s creditors, lets the owner extract cash as rent instead of salary or dividends, and keeps the option of selling the business and the building separately. The same structure arises when a sole trader incorporates but keeps the premises in personal names. This page covers the tax on that arrangement from both sides. The opposite case, where your company owns property and lets it to you or your family, is mentioned at the end because it has its own trap.

How is the rent taxed on you?

Rent from your company is property income, taxed in the same way as rent from any other tenant and reported on your Self Assessment return. For 2026 to 2027 it is taxed at 20%, 40% or 45% depending on your band. From 6 April 2027 property income has its own rates in England, Wales and Northern Ireland, set at 22%, 42% and 47% for 2027 to 2028. Rent is not earnings, so there is no Class 1 National Insurance on it; HMRC’s guidance for landlords refers only to voluntary contributions.

If you borrowed to buy a commercial building, the interest is deductible in full against the rent. The finance cost restriction that limits relief to the basic rate applies only to loans for residential lettings; loans wholly for commercial properties are not affected (PIM2054). Other costs you bear as landlord, such as insurance and repairs, are deductible if the lease makes them your responsibility.

Can the company deduct the rent?

The company deducts rent in computing its trading profits, subject to the rule in section 54 of the Corporation Tax Act 2009 that expenses must be incurred wholly and exclusively for the trade. HMRC’s guidance on artificial prices (BIM38400) states that where something passes between parties under common control at more than the commercial price, the excess over the commercial price is not for the purposes of the trade, particularly where the aim is to move profit into a different tax form. Rent above market value is therefore at risk of partial disallowance. Rent below market value, or no rent, is not disallowed; the company simply has a smaller deduction.

Rent should actually be paid, or properly accrued, under the lease. Crediting it to your director’s loan account is fine if that is recorded, but it is still your income in the period it accrues.

How does rent affect Business Asset Disposal Relief?

When you sell shares in your personal company, or part of your partnership interest, you can sometimes claim Business Asset Disposal Relief on a building you own personally and let the business use. This is an associated disposal. The relief needs you to sell at least 5% of your shares in a personal company and the building to have been used by the business for at least one year up to the sale, and the company itself must be a trading company. The rate on qualifying gains is 18% for disposals from 6 April 2026, the same as the lower CGT rate.

Section 169P of the Taxation of Chargeable Gains Act 1992 restricts the relief to a just and reasonable amount where the asset’s availability to the business depended on paying rent. In judging what is just and reasonable, regard is had to the extent to which the rent paid was less than an open market rent. In practice, a full market rent throughout can remove the relief on the building altogether, and a reduced rent gives partial relief.

Illustration only. You sell your shares and, at the same time, the workshop your company has used for ten years, making a £200,000 gain on the workshop. You are a higher rate taxpayer.

Rent charged Likely relief on the workshop CGT on £200,000
None Full associated disposal relief £36,000 at 18%
Half market rent throughout Roughly half, as just and reasonable About £42,000
Full market rent throughout Possibly none £48,000 at 24%

The cost of the lost relief has to be weighed against the Income Tax saved by extracting cash as rent over the years. With BADR and higher rate CGT now only six points apart, rent often wins, but it should be a decision rather than an accident. See Capital Gains Tax rates.

What about inheritance tax business relief?

Section 105(1)(d) of the Inheritance Tax Act 1984 gives business relief at 50% on buildings used wholly or mainly for the purposes of a business carried on by a company you control. HMRC’s manual (IHTM25222) treats use as a factual test and says there does not need to be a binding contract between you and the company, so charging rent does not prevent relief. The building must have been used in this way for the two years before the transfer, your shares in the company must themselves qualify as relevant business property, and the company’s business must not consist wholly or mainly of dealing in or holding investments. Control is required: a minority holding is not enough.

What terms does HMRC expect to see?

  • A written lease or licence setting out the rent, the term, who repairs and insures, and rent reviews. It is the evidence for the company’s deduction and for any later relief claim.
  • A rent you can support. Keep evidence of market rent, such as agent’s advice or comparable lettings, because both the deduction and the BADR restriction turn on it.
  • VAT. Rent on commercial property is normally exempt, but you can opt to tax the building and charge VAT, which a fully taxable company can recover. Check the revocation rules before opting; see option to tax.
  • Stamp Duty Land Tax on the lease. If the company takes a new non residential lease in England or Northern Ireland, SDLT is due at 1% on the net present value of the rent above £150,000, and at 2% above £5,000,000, so most small leases pay nothing.
  • Premiums. A lump sum for granting a lease of 50 years or less is partly taxed as income; see tax on lease premiums.

What if the company owns the property and lets it to you?

The structure reversed has a different problem. A close company that exists mainly to hold property only avoids being a close investment holding company if the property is let commercially, and section 18N of the Corporation Tax Act 2010 treats letting to a person connected with the company, or to their spouse or relatives, as not commercial. A close investment holding company cannot use the 19% small profits rate. See close company rules.

What mistakes come up most often?

  • Charging a rent well above market to move profit out of the company.
  • No lease, so neither the deduction nor the later relief position can be evidenced.
  • Starting to charge full rent shortly before a sale without considering Business Asset Disposal Relief.
  • Leaving rent off the personal tax return because it was credited to a loan account.
  • Assuming the residential interest restriction applies to a commercial building.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.