Disposal of freehold from Ltd Co to another Ltd in a newly formed group

Disposal of freehold from Ltd Co to another Ltd...

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Hi 

A client of mine owns a freehold property (commercial building converted to dwellings) and in order to raise funding for the next phase of the project he needs to create distinct titles for each dwelling.  The solicitor says the titles can't be created within the existing Ltd Co (call it Company A) and therefore we'll need to place the titles in another Company or LLP.  This effectively means transferring the property to an associated party.  We discussed forming Company B and transferring titles to that, but this obviously gives rise to a chargeable gain and the CT on the gain won't be small!

I have thought about forming a group to take advantage of the "no gain/no loss" position normally afforded to intra-group asset transfers, but as the group doesn't exist yet, I was assuming that there would be some anti-avoidance rules that would kick in.  I can't find anything specific in the HMRC literature on the subject.  All the anti-avoidance measures seem to be related to loss buying where a new group member has losses prior to joining a group.

Can anyone out there who has any experience in this area point me in the right direction in terms of a manual or guidance, or would the proposed new group do the trick?

Thanks in advance

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By Satwaki Chanda
13th Oct 2015 20:11

Intra-group transfer doesn't extinguish the gain

This shouldn't really be a problem, either from your client's point of view or for HMRC either.

When setting up a new group, the transfer from A to B preserves the gain inherent in the property. B inherits A's base cost (adjusted for indexation), together with any other allowable costs.

So:

1. No tax to be paid on the A-B transfer; but

2. The gain is triggered either when B sells the property, or if B leaves the group within 6 years.

The anti-avoidance rule you were looking for is contained in 2 - i.e. it is written into the rules on intra-group transactions.

If you don't mind a little self promotion:

http://taxnotes.co.uk/corporate-tax-groups-intra-group-transfers-are-tax...

and 

http://taxnotes.co.uk/corporate-tax-groups-the-capital-gains-degrouping-...

have examples with numbers. I hope this helps.

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