Limited company built a property and the client has made this messy

Limited company built a property and the client...

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Situation - client owns a piece of land. On the land - hislimited company (property management had built a house).

I have discussed with the client the need to address that the land is in his own name.

The house has been unable to sell and the client has now advised he has sold his own house and will move into the property until his company builds the next one on the neighbouring piece of land and then he will sell the two of them.

So what would be the easiest way to deal with this given the land is in his personal name and the building in the company name?

Would the client simply pay the company rent and then when the house is sold it is recognised as a sale or would it be more advisable for the individual who owns the land to buy the building from the company (thus recognising the sale) then when he subsequently disposes of it after the next one is constructed it would qualify for ppr given the conditions are met?

This particular client doesn't consult prior to doing things and has complicated this vastly in my opinion and hasn't sought secondary information such as land transfers etc as I have previously advised.

Replies (13)

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paddle steamer
By DJKL
09th Feb 2016 17:21

The renting idea has vat considerations, the company has built the house and presumably claimed back vat on costs, if it now decides to rent the house that will surely be an exempt supply and the spectre of the capital goods scheme may loom large over the process.

i suggest the foundation holes of the second property are dug a little deeper than normal to get rid of the problem!!!!!!!!

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By henry williamson
09th Feb 2016 18:31

Despite the fact that the company built the house - meaning, presumably, that the company contracted for it and paid for it - it is likely that the operation of Land Law means that the individual automatically owns the house because he owns the land on which it is built.

He obviously cannot pay rent for the house or buy it from the company because he already owns it but it looks like either he owes the company for the cost building the house on his land or there has been a distribution by the company to him equal to that cost.

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Replying to Calculatorboy:
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By PALacc
09th Feb 2016 18:36

Could it not be that the land is leased to the company or the new buyer? Ie a leasehold property.

I know on my house I own the house but the land is leasehold?

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Replying to I'msorryIhaven'taclue:
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By henry williamson
09th Feb 2016 19:17

In English Land Law if you own a lease of land you own a lease of the buildings on it.

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Replying to I'msorryIhaven'taclue:
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By thehaggis
09th Feb 2016 19:21

No you don't

PALacc wrote:
I own the house but the land is leasehold 

The house belongs to the freeholder because it is on his/hers/its land.

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By PALacc
09th Feb 2016 21:48

Having reviewed my notes from my last meeting with the client - assuming he has since sold the land to the company and done all the land registry etc - so the company owns the land and building - should the director move into the building and not buy it from the company - he would have to pay rent at market value and then deal with any vat implications as vat has been claimed on build costs?

Or an alternative method rather than renting with a view for the company to sell later on would be for him to buy the land and building (land he previously sold to the company) from the company at market value?

Assuming land and building in company name would either of the above be valid possibilities?

I'm waiting for the client to come back to me with what he has actually done since we spoke last so I want to be prepared when he does.

Many thanks

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By thehaggis
09th Feb 2016 23:06

Capital Gains?

Has you client considered the gain arising from the sale of the land to the company?

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Replying to gogzyb:
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By PALacc
10th Feb 2016 08:39

That's one of the items that i discussed with him but he hasn't yet come back to advise me if he has even done a land transfer/even looked into it.

In the years accounts that I will shortly be asked to do the build costs will be substantial as the property would have been near completion.

Given the lack of contact and lack of replies, I had thought the client had gone elsewhere- this is possibly one job i will turn down doing if no points from our last meeting haven't been actioned particularly given the risk of getting it wrong due to lack of action and communication from the client.

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Man of Kent
By Kent accountant
10th Feb 2016 10:07

Similar experience

Deja vu?

I would strongly recommend that you get out now while you can.

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paddle steamer
By DJKL
10th Feb 2016 10:30

Silly question, but is

Silly question but is there a reason why client particularly wishes to move into this house- is he angling for PPR relief? Somewhat sceptical?

I know nothing about English land law so comment with reservation.

I certainly think in Scotland he would, as an individual,  "own" the house and would now be due to pay his company for the works albeit at what price? Presuming a new build building project the bulk of the company's invoice to him appears to be a zero rated supply ,which is not that bad ,but  if he were to sell the two houses (ignoring the living in madness) these would likely be zero rated supplies- is he as an individual vat registered?

But there are issues:

 I think the intent at outset to build two houses probably places him  firmly into the intent to trade category (not certain-don't have all the detail) so any profit he makes possibly subject to income tax/class IV, not sure of course when he bought land/why but some thought needed re his status here.

I think both him and the company look firmly within the scope of CIS registration, having said that no idea of extent of payments from him to company (maybe none) and company to subcontracors, but  may be issue with late registrations/non submitted returns.

This is one of these sorts of cases where letting the client set the pace re information/sorting title etc is a mistake, you really need to put down, in black and white, an analysis of  what he is trying to achieve ( where the profit to end up-individual/company etc) where he is in that process, what he needs to do  to get to that outcome and in what order and who is responsible for what-if you knowing what is going on  but let  it  all drift then if things go pear shape later re tax (and it is one I would not bet against) you look to me firmly in the firing line for the "but my accountant did not tell me what to do" complaint or worse.

Sort targeted outcome then draw a map  to it and stop him doing anything until this is resolved would be my very strong advice.

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By PALacc
10th Feb 2016 11:30

Thank you for the comments. Yes I feel this is probably the type of client who would form a complaint "my accountant never said" so I will see what he comes back to me (if/when) but feel that my mind is probably already made up.

From the outset it has been genuine, he owned a house with a large area of grounds.

The idea to split the land into 3, build two houses and sell them remaining in the original house.

the last accounts only had a few hundreds of pounds expenses in for low value expenses as no build work had been done. It was at the start i advised issues with land registry etc and recommended independent advise re land transfers.

Now out of the blue, one house has been built, he can't sell it and the estate agent has advised it is because the next building will be built next to it and people won't want to live on a building site. So they recommended he sell his own house and move into the new one.

All of this without any consultation/update to me and I fear no land transfers have been done so I do feel my mind is made up on this but am thankful for all opinions/advice given to me to support my decision for when I get to speak to the client.

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Nichola Ross Martin
By Nichola Ross Martin
10th Feb 2016 13:16

Ooops, we have seen a few of these in recent years

If the land was his, then the cost of the house built was a taxable benefit unless of course it was made good. There is case law on this and difficult to argue otherwise. I would be rather wary of backdating any transaction and one in land has to be in writing in any case. He could sell the land in consideration of an interest in the property - a long lease perhaps Be careful of s224 TCGA although as someone has said s756 ITA 2007 will probably bite. I bet he has some VAT horrors too. 

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By PALacc
11th Feb 2016 13:07

Finally a reply from him - still hasn't sorted out any land transfer - is "planning" on meeting with someone next week to discuss the transfer of land.

Along with this statement " I am working on the basis that the transfer of land for the two new houses will occur on completion of the sale together with the redemption of the mortgage for (original home). At this point in time part of the proceeds of sale will be retained by me as payment by the company for the land which will be attached to (property 1). Again this has had no consultation with me.

So how do I politely explain to the client that we are not going to proceed with this as his accountants?

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