Dividend in specie

Dividend in specie

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Any tax experts? I would be most grateful. I read an article in Tolley's that a property can be transferred to a shareholder as a divi in specie, growth accrues on the shareholder and he can claim ER. I have a client who may be interested in this but I wanted to check with you tax experts how the shareholder can claim ER once the property is transferred in his name.

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Portia profile image
By Portia Nina Levin
30th Sep 2014 16:25

Start with

Has the company got sufficient reserves to make the distribution?

Is the property subject to a mortgage?

It is perfectly doable. The reason for extraction as a dividend in specie is to avoid there being SDLT.

If no rent is charged, and the property is held for at least a year (and the company continues trading for that year), if the property is sold within 3 years of the shares being sold, then, yes, you would get ER.

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By MGD
30th Sep 2014 16:38

Thanks for coming back to me Portia. Yes definitely sufficient reserves. The company is both trading and investing in properties and this particular property is commercially let out to tenants and subject to a mortgage.Yes I was aware of the saving of SDLT. Would ER apply in view of the investments? Thanks

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Replying to Moonbeam:
By johngroganjga
01st Oct 2014 08:08

ER

MGD wrote:

Would ER apply in view of the investments?

As you now explain that the property is an investment - not used by the company for the purposes of its trade - then I do not believe that ER will be available.  I think Portia was assuming that the property was used in the company's trade. 

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By julian.sims
30th Sep 2014 20:18

Distribution / Capital Gain in Company

If considering this, bear in mind that the dividend in specie is a dividend and may therefore give rise to income tax liabilities on the shareholder (at Higher or Additional Rate) and also that there may well be a Capital Gain subject to Corporation Tax within the company depending on the current value of the company.

I know this should be obvious but I have seen people miss one or both.

The idea can work well in the right circumstances but depends very much on the value and history of the property.

 

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Replying to Wilson Philips:
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By MGD
30th Sep 2014 22:17

Thanks a lot for this. Yes I have considered Income Tax and Capital Gains. 

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By The VAT Doctor
30th Sep 2014 22:18

Subject to VAT?

Assuming the property was subject to VAT somehow, do we all agree that a DIS transfer may still be a supply for VAT, if the ownership changes?

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By MGD
30th Sep 2014 22:58

Would it really? I didn't know that

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By The VAT Doctor
30th Sep 2014 23:09

Previous

Just seen this.  Had a conversation about this recently with a colleague and he felt the same as you - it is a dividend.  But my simple VAT brain said to me that, if the ownership of goods changes, this is a supply for VAT, whether a gift or for consideration.

http://www.taxation.co.uk/taxation/articles/2002/10/31/2170/replies-quer...

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By MGD
01st Oct 2014 20:48

thank you all for your comments. Much appreciated

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