The case of Sharkey v Wernher established the principle that stock taken for own use or disposed of otherwise than by sale in the normal course of trade should be treated as if it were a sale at market value.
The principle is not applicable to sales or purchases by way of trade even though the transaction may not be at arm’s length.
My client is a controlling shareholder / director of a small property development company that develops and sells one residential property at a time.
Last year a property was developed at a total cost of £185,000 and did not sell for its marketed price of £215,000 for six months. It could be argued that the market value was £200,000.
In order to free up sufficient funds to purchase the next property for development the director agreed to personally acquire the first property at cost.
Is this a sale by way of trade and therefore no uplift is required in the company’s tax return?
Even if there is no uplift, presumably a benefit in kind will be payable by the director on the difference between the market value and the cost?
stormrider
Replies (3)
Please login or register to join the discussion.
S v W : companies ?
There is an assumption here as to which I am a mite leary. I do not think it is writ on tablets of stone that the S v W judgement applies to corporate bodies. In my view, the property comes out at cost--in essence the employer is providing a benefit to an employee - and
the latter faces a taxable benfit on the lines you give.
Hmmm
Thanks Denedin!
My client has a bundle of 'commercial' evidence to show that the property was purchased at market price including a document showing another house in the same street for sale at that price, so... I have advised of the risks and there is full disclosure in the accounts.....
Watch this space!
Helpful article
Stromrider might wish to look at Keith Gordon’s article in Taxation on 1 May concerning Sharkey v Wernher