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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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.
ER
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.
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.
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?
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...