Property Transfers by Trust

Property Transfers by Trust

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I have a couple of new clients who own a property as Tenants in Common. This property was purchased using 100% funding i.e. by a 50% loan on the property and 50% loan on their main residential property.

They had now decided to develop the plot by demolishing the existing property and then building 3 new builds. This is development should net in the region of £750K. They have been advised by a property developer friend to transfer the property to a limited company they have and for the limited company to complete the development. This transfer to be completed by way of a Trust with the company also being liable for the 100% mortgage facilities and including this as a long term debt within the company’s accounts with no increase to their director’s loans.

For information the property has recently been independently valued at £430K which is what they purchased this for some 8 years ago – so there will not be a CGT issue.

The main issue here appears to be the 100% funding, as if this property was transferred to the company by a normal conveyance the facilities would need to be cleared and the company would not be able to obtain this type of funding.  Also if the company does not have responsibility for this debt the overall pre-tax profit will increase.

Does anyone out there know can this be done and if so will this work and what are the implications regarding SDLT etc 

Replies (4)

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By blok
27th Jul 2012 10:24

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Can the company not simply devleop the land under a contract and leave the property and the funding where they are?

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Replying to farmergiles65:
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By Grange
27th Jul 2012 11:32

Yes they could but then they would be subject to Income Tax @ 40/50% on the profit

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By blok
27th Jul 2012 11:51

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not if the amount charged by the company was equal to the projected profit. 

There may be an element of double taxation on the extraction from the company but you are going to have that anyway.

any transfer into company by individuals will involve a conversation with the bankers.  If you wish to proceed that way, that is where you need to focus your attention initially.

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By Grange
27th Jul 2012 12:50

Many thanks for info I will investigate this

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