In the case of directors and entrepreneurs who work from home and rent out a room to their PLC, the tax authorities often take the position that taxable rentals cannot be opted for in case of some private use. In a recent ruling, the court of appeal nuanced this. The decisive factor is whether the leased part is used as a residence. If the whole is used for more than 70% for business purposes and is not used as a dwelling, an option taxed letting is possible. In addition, the court confirmed that letting to one's own bv at a market price constitutes an economic activity.
Garage rental to bv
A lawyer and his partner buy a piece of land and have a house built on it. The house contains a study and a garage, which are located next to each other and connected by a connecting door. The garage also has its own exit to the outside. The partnership of the lawyer and his partner claims input tax deduction on the construction costs. It leases both rooms to the lawyer's limited company and the lease agreement states that the lease is subject to VAT from the outset. The lawyer regularly carries out work for the bv in the study. The garage stores the company car and documents belonging to the bv. The garage is used for 79% business purposes.
Taxed rental option
The inspector refuses the requested refunds. He argues that there is no economic activity, as the workroom is not sufficiently independent to rent out to any third party. Its use as a residence also means it cannot be opted for taxed rental. The court reached a different opinion. The law allows for taxable rental of parts of buildings that are not used as a residence. According to the court, this also applies to non-self-contained parts of a building that is mainly used as a residence. The parties agree that the study and garage are inseparable and form a single entity. The court ruled that this whole is mainly used by the BV and other than as a residence. The private use is secondary to the business use. In conclusion, the court finds that taxable letting is possible in this situation.