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One of the properties was sold soon after for its' probate value (£90k) and the proceeds then withdrawn by the director.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