Hi all,
First time I am posting a question/(s) on accounting web.
Scenario: I have a ltd company client with (company A) who makes close to £1million profit every year. They have seven shareholders. They want to set up a second (Company B) which has the same shareholders as company A to purchase a property, from this property they will move the operation of company A (once their current lease expires in a years time) and also let out part of this property for rental purposes.
Questions: Since company A has large reserves (exceeding £2 million), can they transfer money to company B? This will not be a loan but a transfer of taxed reserves as company B will not be required to pay back any amount to company A.
Does it matter that there are seven shareholders?
Any law/HMRC correspondence which allow or block such a transfer?
I have advised my client that it is possible and there is not tax issue as this is not a transfer to any participator but to a company which has the same shareholders and shareholding. Thanks guys in advance for any answers/guidance
Regards Mo
Replies (10)
Please login or register to join the discussion.
Any money transferred will be a loan.
There are no laws to prevent companies lending money to each other.
This will not be a loan but a transfer of taxed reserves
Now that part is a bit unclear - there is no scope for transferring taxed reserves unless it's a payment in the form of dividends!
A does not go into B
The fact that company B has the same seven shareholders is irrelevant - Company A and company B are two entirely separate entities. As johngroganjga and taxguru point out loans or dividends from A could be used to fund company B but as this is a property transaction why not acquire the building from a mortgage, allow B to stand on its own two feet and leave company A's liquidity and net worth alone?
Or...
Well A could own B and transfer the funds as share capital?
Though it might be more logical for B to own A, receive a dividend and use that to buy the property. Then B is the parent investment/holding co, A is trading sub. Your accountant will advise on tax consequences of the move...
They might be connected
Then again, they might not. It depends on whether you (or HMRC) deem "person" to include "persons".
A company can only pay a dividend to its shareholders.
If the shareholders do not want a loan between their two companies ever to be repaid (why they would want to deny themselves that option is beyond me) let them arrange for the creditor company never to ask the debtor company to repay it.