Property company question

Property company question

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I have a query regarding a client who owns a Ltd company that has a rental property. If the client has purchased a residential property in their own name, is it possible and what would be the implications if their company were to purchase the property from them personally? This is what I think the implications might be but I am not certain so I would be grateful for any comments or thoughts on these.

Ltd Company

  • Property would be transferred into company at current market value and would be included as a fixed asset on balance sheet.
  • SDLT would be due by company at appropriate % according to current market value.

Individual

  • Assuming client is higher rate tax payer capital gains would be due at 28% on market value less cost less any improvement costs

Once again any thoughts would be much appreciated.

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Teignmouth
By Paul Scholes
07th Nov 2011 14:12

Yes and

There are lots of other considerations many of which will depend on numbers and time scales however you should note that once in the company, if the property increases in value, then when it's sold the company will pay corporation tax on any gain.  If the person then wants that money back out they will have to withdraw it as dividends or (by closing the company down) as a capital distribution, with CGT, and so there is effectively a double hit to tax on the one sale.

To partly counter this, companies still get indexation allowance on the cost of the property, this is not the case for an individual.

Depending on sums involved any rental profit the company makes will suffer CT and so, if there is no need to withdraw those funds as salary or dividend, then your client is making the most of the differential between CT & IT rates, which I'm guessing is one of the reasons for wanting to do this?

In most cases though there has to be a definate (or very likely) benefit to accrue before I'd advise the transfer of a personal investment property into a company.

For more detailed advice, Tax Cafe do a great set of cheap books on propertry tax including I think "using a property company to save tax"

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