How to treat a property that has been gifted to the company?

How to treat a property that has been gifted to...

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Hi,

It's not often that I post a questions on here but I'm really struggling with the treatment of properties owned by a limited company.

We have a new client whose Limited Company owns 4 properties, it has become apparent as I've been working on the accounts that 2 of the properties weren't sold to the company.

The first 2 properties were sold and the value of that I have posted to the Director's Loan account, but the client is saying they gifted the 2 other properties to avoid the Stamp Duty. Too be honest this doesn't sound right or legal to me and I'm wondering unless the deeds say the properties are owned by the Limited company then in fact they aren't owned by the limited company?

If I find out the deeds say that the Limited company owns them then how do I treat these 2 properties in the accounts if no money has in fact changed hands?

Any help would be very much appreciated as we are only a small practice and I don't have anyone else to ask.

Kind regards

Tracy

Replies (11)

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By bernard michael
15th Dec 2015 11:04

Stamp Duty is paid on the consideration given. No consideration no Stamp Duty.

However he won't avoid CGT, which based on the market value at date of transfer. I agree you should check at the Land Registry because he cannot say it's owned by the company if it patently isn't

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By Ruddles
15th Dec 2015 11:35

Who gifted what?

Are you saying that someone connected with the company thought (or was advised) that he could avoid SDLT by gifting properties to company? If so, oh dear oh dear ...

But to answer the question, the accounting should be simple, but dependent on what the properties are being used for (development, trading premises, investment). You simply "record" them at £nil cost, and the consider whether it is appropriate to revalue them for the accounts.

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Replying to bernard michael:
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By lancashire
15th Dec 2015 11:47

Thanks Ruddles, yes he is saying her didn't sell but gifted the properties to avoid Stamp Duty.I'm thinking now if the Land Registry hasn't been changed then they aren't owned by the company anyway and should be left out of the accounts? The properties are all residential properties.

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By JimFerd
15th Dec 2015 11:37

I'm fairly sure it used to be possible to gift property and avoid (read: delay) SDLT, as long as the transfer wasn't legally completed. Contracts would be exchanged, but legal title wouldn't change hands. The donee would have the beneficial interest.

Gains would still be calculated as normal upon exchange of contracts.

I think there was a recent change to stop the above from happening - but I have a feeling that once the gifted property was actually used for the benefit of the donee - then this would be considered tantamount of completion, and would trigger a SDLT charge.

That being said - it seems crackers to gift a property to a company for no consideration, even if it does delay SDLT.

Assuming that the properties were gifted for no consideration, I would think the MV of the property would be used to debit L&B (as that would be the disposal proceeds or their personal CGT, and it's a RP transaction). I'm not sure that the credit entry would be.

Hopefully someone with some concrete knowledge will be able to help.

 

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By Portia Nina Levin
15th Dec 2015 11:39

What you say in your first paragraph is generally correct Bernard.

However, in relation to land interests (which is what I assume the OP means by "properties") it is stamp duty land tax (SDLT), and not stamp duty, that is in point.

FA 2003, s. 53 says that where  a chargeable interest is transferred to a company the consideration is deemed to be market value if it exceeds the actual consideration. And the actual consideration will include anything paid by the company and all indebtedness that it assumes.

Additionally, since there are four properties being transferred by the same person to the same person in what appears to be a series, the transactions are linked transactions and liable to SDLT as a single transaction. If (at least two of) the properties are residential properties, multiple dwellings relief is available.

A trust over land must generally be evidenced in writing (but see cases like Prest), so if the title deeds still show the individual as owner, and no SDLT return has been filed, it seems likely that the land interests have not been transferred.

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By Ruddles
15th Dec 2015 11:58

Actual ownership aside

It may be worth pointing out the flaw in your client's 'plan' - not least to ensure that they are aware should they try something similar in the future. As pointed out by Portia and myself, gifting does not avoid SDLT when the transferee is a company connected to the transferor.

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By JimFerd
15th Dec 2015 12:28

I'm sure people used this system to delay the SDLT by not completing the transfer.

This could be the case here, and would explain why the company is not on the title register.

Like I said though, I think the rules on this changed several years ago in terms of the SDLT, when they brought in the substantial performance rules. EDIT: By several, this could be December 2003, when SDLT was introduced.

Transfer dates would help get to the bottom of it I expect.

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By Ian McTernan CTA
15th Dec 2015 12:18

Evidence

Does the client have any evidence of the gift?

Bear in mind these are connected persons, MV is used as the sale price to the company.  It is unlikely any hold over relief would be available, so the client could be facing a large CGT bill.

I'd suggest the first step would be to determine what if any CGT bill is overdue.

It's also not a good idea to gift a property into a limited company without consideration, raises all sorts of other issues too.

Avoiding SDLT isn't a great plan- and I have to question why the client felt the need to transfer these properties in anyway, if he owns 4 it's not a good idea to have them all in the company anyway.  After April with the 3% rise it might be a better thing to avoid...

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By lancashire
15th Dec 2015 14:34

Thanks for all your comments and help - I'm going to do some more investigating and take it from there.

Kind regards

Tracy 

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By TerryD
16th Dec 2015 16:46

FRS102

I think FRS102 will require you to recognise donated assets at their fair value at the time of acquisition.

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By tonycourt
16th Dec 2015 20:21

What about IHT?

@ Lancashire - of course your client can gift property to a company and although there is a requirement to notify (register) the conveyance of land neither this nor the title deeds are proof of beneficial ownership where a person (including a company) can prove it has an interest.

@ JimFerd - I think you're referring to the "resting on contracts" wheeze. This was stamped on (terrible pun intended) with the introduction of SDLT which only requires a contract for the conveyance of land to be substantially completed for it to apply. In the pre SDLT regime SD was only charged on the delivery of a completion document - so all the time the transfer rested on contracts there was no charge.

@ anyone that bothers reading this...........I'm guessing the company is 100% owned by the client, if not there might be an IHT liability because the gift of the properties would be a chargeable lifetime event.  

Overall, given the scheme's ineffectiveness in avoiding SDLT, CGT and possibly IHT it wasn't a stellar plan. Possibly a bloke-down-the-pub scheme  ....BTW why's it always a bloke down the pub, why not a  bird down the pub.   

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