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Sale of property from Company's stock to shareholder / directors

Hi

Client is a Ltd company that currently has several new builds up for sale. The company is owned by a husband and wife who are also the shareholders.

During the last yr the largest one has been rented out. The bank has a bridging loan, bizarrely secured agst the shareholders home not the development, loads of equity even in this market place. We have only recently been engaged as the company's accountants, previous one having retired.

The bank have now given notice for the loan to be repaid.

Fin'l Advisor has comeback after much hunting with only one option, buy to let mortgage but it has to be in the shareholders name. This means selling the house to the shareholders, crystallising a Co. profit, corp tax, stamp duty and legal fees but can't currently see away round this.

Question: What price shd be used? The potential lenders have done a valuation so that's one possible. The value won't effect the mortgage as it it's rent based but lower will reduce the CT. CGT will be a possible issue later. Their solicitor has suggested they can choose one but my thinking is 'related parties', tfr of profits/value etc

Mark

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OMV

Open market value. Beware of relying on the lender's valuation, though. You'll need a valuation that the valuer can back up if there's any dispute with HMRC.

But I'd be looking for a new bank first.

Have you look at the VAT position when the house was first let to see if there's a clawback?

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Vat clawback

Hi Neil

Thanks for that

Vat clawback - Client only came to us in April, must admit that hadn't crossed my mind, probably shd have having just sorted out a vat reg'n for a another new client where he had 2 props converted from comm'l to res'l flats and issues about first supply.

Mark

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"Loads of Equity"

I take it there is insufficient equity in the shareholders home to re-mortgage and use those proceeds?

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Remortgage own home

Good point James

Yes but buy to let based on rental incomes is ok but own home no as they jointly don't have sufficient income cover.

Bizarre times we live in

 

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why cant you sell it for what you want

there are no transfer pricing restriction are there

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Sorry, what are you saying carnmores?

A sale to an unconnected party can be at any price because that is taken as OMV. Why would you sell to a third party for less than the house is worth? The sale to a connected party is treated for tax purposes as at OMV whatever the accounts say. But you know that already, don't you?

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Fire Sale?

I would be looking to run an argument here that the finance house are forcing a sale. I don't think it would be unreasonable to conclude that the arm's length price is therefore well below what you might fetch in an orderly sale process.

My understanding is that an Inspector would have to look at the actual circumstances of the sale rather than some hypothetical sale, so I'd be keeping a body of evidence in support of the price that's set. 

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Ownership is the buyers choice - how to fund the purchase is the

As  understand it:

The ltd company owns the property (verifiable via the land conveyance, and hence the buildings constructed upon it, unless a lease was put in place).

The bridging loan was probably secured upon the couple's home because originally the undeveloped land had insufficient value. So drawings will have been made by the share-holders against the bridging loan to be 'lent' to the company to fund the construction. ie the ltd co via it's directors decided to obtain funding from it's share-holders.

So really the IFA's description of 'in the shareholders name' needs to be verified. The singular shareholder name suggests to me that perhaps the intent is that the buy-to-let needs to be in the company's name. This would seem to be a better fit to the true situation.

I would would expect the following:

  Ltd Co agrees a buy-to-let mortgage secured by a first charge over the new build property(ies). It is also probable that a bank will require further security to be in place (eg a floating charge over further assets within the ltd co or a guarantee over the share-holders' other assets (eg charge over the home)).

  The ltd co's received funds from the buy-to-let mortgage would be used to pay back the funds 'borrowed' from the share-holders. 

  The returned share-holder funds are used to repay the bridging loan.

Although different banks could be used it might be easier to perform the whole transaction using the same bank if possible as the whole transaction is visible and may, by hard negotiation, obviate the need for the further security requirement on the share-holders other assets.

This transaction means that no transfer of ownership takes place as indeed that would seem to be the intention from the outset.

The buy-to-let mortgage would proceed in a straightforward way based on LTV and rental/repayment percentages which would be determined via the buy-to-let bank's surveyor.

I thinks this normalises the situation, but I am not sure about the tax implications, but these should be minimal.

 

 

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Bridging Loan - Bank or shareholder?

-- David G

My understanding of the situation is that the company's bankers have a bridging loan over the new build property secured against the shareholders home!!

In this situation is it not just a simple case of the company re-financing the new build property and repay the bridging loan with no tax implications? Assuming the company is trading profitably and there is plenty of equity in the property I can't really see a problem in finding new lenders. 

I agree with the previous post that the company really needs to find new High Street bankers.

 

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Clarification of the situation

Hi

Just to clarify some points in repsonse to 'drakeltd'

The bridging is in the company's name but secured agst the owner/directors home

The bank with whom the bridging is with will not entertain a 'buy to let' mortgage in any name or loan secured agst the whole site, worth 3 times the value of the bridging. As an aside, so much for the Banks saying they out there lending money, real?

Rents are being rec'd by the company not the directors

We are still trying to find finance for the company to avoid tfr'g the property to the directors, to avoid stamp duty etc

Mark

 

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Bridging Loan - Bank or shareholders

-- David G

My understanding of the situation is that the company's bankers have a bridging loan outstanding which is secured against the shareholders personal home!

The bridging loan was meant to be a short term loan to fund the development which was to be repaid once the property had been completed and sold. 

As the property is now rented out the company needs to re-finance the property to repay the bridging loan. There is no tax implications in doing this. Assuming the company is trading profitabally and there is plent of equity in the new build then I can not see a problem.

Its time to find new bankers me thinks!!

 

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Bank Loan for Rented Property

-- David G

Just had the same situation with one of my clients except the loan is secured on the new build. The property is on the market but the client has now decided to rent out as currently no interested parties.

We have had meetings with Lloyds TSB in order to refince the bridging loan - the bank manger was very keen to lend the money subject to proving a 12 month cash flow forecast.

 

 

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Glad to hear Lloyds.......

Glad to hear Lloyds are more understanding than NatWest. They just want their money back what ever the cost to the client after being a customer 10+ yrs.

 

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