Company sells one of its' properties

Company sells one of its' properties

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A new client was the beneficiary under her late father's will of four commercial properties which were rented through the late father's limited company.

She incorporated her own company and the properties were acquired at nil cost by her company via a deed of variation drawn up by the executors solicitors.

She is the sole shareholder and only director of the company.

One of the properties was sold soon after for its' probate value (£90k) and the proceeds then withdrawn by the director.

Am I correct in believing this withdrawal is not a dividend payment but the part settlement of the director's loan balance?  

Replies (14)

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By johngroganjga
16th Apr 2016 08:24

You tell us. Where did the company debit the payment to? Was there a sufficient credit balance on the DLA for £90,000 to have been a part settlement of it?

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the sea otter
By memyself-eye
16th Apr 2016 09:37

There is no 'balance'

on the DLA - the company had four properties (now three) which it acquired through the deed of variation but it paid no cash for them. I suppose the question is "Is a DLA credit created by the beneficiary director opting to put the inherited properties into their company"

If yes then a liability to the director of 4 X £90k (probate values) would be created with freehold buildings assets of £360k: reduced by £90k upon sale with corresponding reduction in the DLA.

I may be over thinking this one of course, but it's bugging me.

  

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By johngroganjga
16th Apr 2016 19:12

Are you saying that the deceased's will left properties to your client, but she approved a deed of variation whereby they were instead bequeathed to a company she owned.

If so, whose idea was the deed of variation, and if it was not your client's why did she agree to it? Either way what was it meant to achieve?

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the sea otter
By memyself-eye
18th Apr 2016 09:04

That is correct

I assume the deed of variation was agreed by the solicitors handling the estate. The issue I am now looking at is taxation treatment of the extraction of the proceeds of sale.

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By johngroganjga
18th Apr 2016 09:43

The solicitors may have been instructed to prepare the deed of variation to give effect to the beneficiaries' wishes, but it is none of their business to agree it.  Only the beneficiaries entitled under the original will can agree it,

You have not explained why your client agreed to it. Did anyone advise her that it was in her interests to do so?  The point is that it seems highly implausible that anyone in their right mind would do something that is so obviously contrary to their own interests (and it does not even benefit anyone else!). So I am wondering whether your understanding that the client relinquished her entitlement to the properties in favour of her company is right. Do you have a signed and sealed copy of the deed of variation, or is your knowledge of it limited to what your client has told you? 

The point is that if your client really did relinquish her entitlement there is nothing to credit to her DLA on the transfer of the properties, because they were never hers to transfer.  If so the accounting and tax treatment of the extraction of the proceeds is the same as the treatment of any other extraction that is not the repayment of a loan. 

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the sea otter
By memyself-eye
18th Apr 2016 12:00

I was afraid that might be the situation

I have not seen the DOV - but I do know she has a copy - which I can look at. I don't know the reasoning behind the set up, it was arranged prior to my involvement but doubt the client would have relinquished her rights to the properties. My perception is that a sale of one of the properties was not considered - only the ongoing rental income.

Thank you for the feedback I'll let you know what the DOV says.  

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By gbuckell
18th Apr 2016 14:41

(No subject)

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By John R
18th Apr 2016 15:07

More information needed

If the properties were let through father's company then they were owned by that company and cannot have formed part of his Estate notwithstanding what may be stated in the Will. It follows that they cannot be the subject of a Deed of Variation. If the daughter was left the shares in father's company then it is the shares that could have been the subject of the DOV. Daughter's company would therefore have become the holding company of father's company. The OP needs to obtain clarification as to what has actually happened and why.

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the sea otter
By memyself-eye
21st Apr 2016 10:10

Clarification update:


The properties were let through the father's company so the shares point is valid.

The background is this.

The father rented the properties in question through a company he owned (or part owned - I haven't seen the details)

He died leaving his estate to one of his two daughters only, ostracising the other daughter who had fallen out of his favour. The daughters agreed that in the event of the father's death the ostracised sibling would not lose out and a DOV was drawn up in which the rented properties were vested in the 2nd daughter personally (there is no mention of a company or a company shareholding - the DOV only lists specific properties). The DOV which I have now seen was prepared by a firm of solicitors at the behest of the original beneficiary. I do not know if the solicitors appreciated where the original ownership lay.

I also have a copy of the register of title clearly showing Title absolute of the properties in the name of the second daughter's company, NOT IN HER NAME. How this happened I have yet to ascertain.

Upon the sale by her company, (an invoice from the company was raised) of one of the properties she withdrew the full sale proceeds from the company!

I am meeting both daughters soon to see what other facts I can establish but this gets more complex by the day...

 

 

 

 

  

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By Duggimon
21st Apr 2016 11:11

That's not so much a clarification as a complete revision of the scenario.

Is your client the second daughter?

Did she personally own the properties as a result of the DOV?

How did there come to be a DOV for the properties when these were not owned by the father but by his company? Was the company dissolved, the assets passed to daughter 1 and then to daughter 2?

Has she then transferred those properties to a new limited company?

 

In short, if your client owned the properties personally (1), 'sold' them to a limited company in return for a credit to her DLA (2) and the company has now sold the property and she is withdrawing the money then yes, it can be treated as a repayment of her director's loan with no tax consequence.

It is far from clear if points 1 and 2 are in fact the case though, I suggest you need to find out a lot more about the sequence of events.

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the sea otter
By memyself-eye
21st Apr 2016 14:14

I do apologise


Yes my client is the second daughter

Yes she personally owned the properties via the DOV

I don't yet know how the transfer came about but the properties were passed  to daughter one then to daughter 2 (my client) via the DOV and are now in her company.

I have not yet spoken to Daughter one who instigated this and it MAY be the case that the properties were owned by the father personally and not by his company in which case the DOV stands - but that I not what I have been told so far. I am meeting D2 shortly to clarify this 

If this proves to be the case then Duggimon's final comment above mirrors my original view.

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the sea otter
By memyself-eye
27th Apr 2016 15:01

more clarification (or not)

The properties were owned by the father's company which was dissolved in 2015 before the date of the DOV. He died in Nov 2013.

The DOV was prepared by a firm of solicitors in conjunction with the late father's accountants. Daughter 1 (the original beneficiary) has advised me that the company's shares were transferred into 'the estate' (her words) prior to the company liquidation.

She advises in the strongest terms that the distribution of assets following the father's death was 'handled correctly'. Am I now to question both a (presumably) competent firm of solicitors and a (presumably) competent firm of accountants?

 

 

 

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Replying to I'msorryIhaven'taclue:
paddle steamer
By DJKL
27th Apr 2016 15:25

Horse's mouth

memyself-eye wrote:

The properties were owned by the father's company which was dissolved in 2015 before the date of the DOV. He died in Nov 2013.

The DOV was prepared by a firm of solicitors in conjunction with the late father's accountants. Daughter 1 (the original beneficiary) has advised me that the company's shares were transferred into 'the estate' (her words) prior to the company liquidation.

She advises in the strongest terms that the distribution of assets following the father's death was 'handled correctly'. Am I now to question both a (presumably) competent firm of solicitors and a (presumably) competent firm of accountants?

 

 

 

Upon the liquidation of the company the properties  were presumably  either received as a distribution (??) in specie ,and surely had some sort of valuation attached to them within the estate to be presumably distributed under the deed of variation.(????) or is it possible some form of company reorganisation was effected?

Imho that possibly is the first step you need to determine,  what did happen ,and having determined the mechanics  of the steps the next question is what did your client, receiving the property as their inheritance, then do with the property?

You do not need to dispute anything with the accountant/solicitor you merely need to ask them to clarify the various steps taken.

This does sound like one of these cases where talking with the client is a waste of time, they have been led by their professional team, so going to the horse's mouth rather than collecting data via Chinese whispers is imho the way to go.

 

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By johngroganjga
27th Apr 2016 15:19

Better go back to the beginning.

Under the DOV the property that had been extracted from the deceased's company by the estate was transferred to whom - to your client or to her company? 

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