Transfer of Fixed Assets to Director | AccountingWEB

Transfer of Fixed Assets to Director

I have a dirctor who's Company owns a property and he would like to pay himself the property as a dividend (say the value of £500,00) to make things quantative.

He would like to know whether he will incur CGT or just the payment at the dividend rate of tax - also he woud like to know how this will affect the business in regards to Corp. Tax.

Am I correct in saying (as this is a very practice based question in my mind) that the asset would need to be 'purchased' at market value and therefore the value 'paid' (£500,000) would be subject to standard tax from the Companies perspective AND his personal tax computations would then reflect a liability of CGT based on the fact no money has actually exchanged hands and he was 'paying' himself this asset as a dividend.

Your help and assistance with a reasonable explanation would be greatly appreciated as I have come a bit unstuck with my reasoning for the treatment of the implication either way.


Thanks guys,



Steve Kesby's picture

Dividend in-specie

Steve Kesby | | Permalink

I'm assuming that your company owner controls the company, so that he and the company are connected persons.  If so, there are three (possibly four) immediate consequences:

The company is disposing of the property to a connected person, deemed to take place at market value, so the company will have a chargeable gain, liable to Corporation Tax, based on a market value disposal.

The shareholder is receiving a distribution (or worse is receiving an asset as director by reason of being a director - NIC ker-ching!) of the property at market value (that will be his base cost for CGT going forwards too).

The satisfaction of an obligation to pay a dividend (or remuneration) is consideration for SDLT purposes, so an SDLT charge will arise.

Is it residential or commercial property, because there's also a supply for a consideration for VAT purposes, which may or may not be exempt.

You should also bear in mind that, from a company law perspective,  you do still need to have sufficient distributable reserves to make the in-specie dividend and that it is probably a substantial transaction with a director, requiring formal approval by the member(s).

Anthony.Evans82's picture


Anthony.Evans82 | | Permalink

Hi Steve,


Thanks for that - can I just ensure that I have absolute clarity then:

Company Perspective:

1.  The value (OMV) of the property because it is a transaction between a connected perosn needs to be available in distributable reserves even if a non-monetary dividend is being paid.

2.  The transfer of the Land/Building will result in a chargeable gain subject to CT @ 20% (approx £100,000 without any reliefs etc.)

3.  I am assuming there is going to be a requirement to disclose the transfer within the accounts?

Director Perspective:

1.  NIC (Normal or Alternative method) will show the £500,000 value as an earning and therefore will incur EE NIC (What about ER NIC) for the Company?

2.  SDLT will apply to the Director as a cost @ 3% (£15,000)

3.  The CGT will be based on the OMV of the asset (£500,000) and there are unlikely to be any incidentals to apportion against it as there is no cost in acquiring the asset to the Director - so I assume this is £500,000 x 18% = £90,000 (ish) - do you agree?

4.  The property is a residential property - this shouldn't have any bearing on the director acquiring the property though should it?

Sorry, but this is quite murky waters in my eyes and I want to ensure I am armed with the correct information.


Ant :)

blok's picture


blok | | Permalink

The individual is subject to income tax on the dividend.

Anthony.Evans82's picture


Anthony.Evans82 | | Permalink

I assume the Company will not have to pay CGT, but if they are able to use the indexation allowance is that just recorded against the chargeable gain?

Steve Kesby's picture

You're right on the company side.

Steve Kesby | | Permalink

The points you make for the company are correct.

You do need distributable reserves available to take the property out as a dividend in specie, as you're removing assets that would otherwise be available to pay the creditors, and having distributable reserves prevents you from removing more than you ought.

The gain in the company will qualify for indexation allowance.  Yes, there will need to be a related party disclosure, I imagine.

Because the property is residential, there won't be any need to charge VAT, but you are making an exempt supply and, if the company's VAT registered, the VAT on any directly attributable inputs and possibly a proportion of any VAT on overhead may not be recoverable (although it may be de minimis).  You will need to perform a partial exemption calculation for the period, plus an annual adjustment.  If the company's not VAT registered, you already can't recover the input VAT anyway.

For the individual, as long as it's a dividend (you need to declare it that way and have distributable reserves), there won't be any NIC consequence, as blok says.

I'm not sure why you're trying to do a CGT comp for the individual.  Will he be disposing of it immediately?  If so, I do question doing things this way.

If you're just looking at the longer term position, I'd agree that any gain will ultimately be charged at 18%/28% to the extent that it exceeds the annual exemption, assuming nothing changes.

Chris Smail's picture

No! Read what Steve said

Chris Smail | | Permalink

SDLT will be due on the transfer

The company is making the disposal, so the company has a CT liability on the CG.

If the distribution is a dividend then the director will have to bring it into Income tax as a dividend and pay the higher rate tax over

If the director  is receiving an asset as director by reason of being a director then NI as well.

So that is 3 or maybe 4 taxes: SDLT; CT on Gain; HR Income Tax; maybe ERNI


Transfer must be at OMV and disclosed in accounts

Steve Holloway's picture

Chris / Steve

Steve Holloway | | Permalink


I don't follow this bit ... 'If the director  is receiving an asset as director by reason of being a director then NI as well'

Don't directors often receive dividends!? Surely, if the director is a shareholder then he receives the asset / dividend because of the latter not the former. This is a potentially relevant point to something I have been looking at recently, so I would be interested in clarification and sorry to hijack the original question (although I think the OP might have the same question!).

Steve Kesby's picture

Sorry, clarification

Steve Kesby | | Permalink

It's not NI as well if it's a dividend.

Provided you do things properly to make it a dividend.  Declare it as a dividend and make sure you've got the distributable reserves, then it shouldn't be challenged as anything other than a dividend.

If you do something wrong so that HMRC can argue it's a salary, then you'll get the NI hit.

I think what Chris means, is that there's tax on it whether it's a dividend or salary (albeit calculated differently), but if you do something silly so that it get's treated as salary, then you'll get NI on top of the tax.

I don't think there's any fault in your understanding.

Steve Holloway's picture

Thanks ...

Steve Holloway | | Permalink


Chris Smail's picture

Yes, thats what I meant

Chris Smail | | Permalink

Income tax if Divi as shareholder, but if paperwork messed up then Income tax+ ERNI as asset transferred to director as a benefit of office 

Paul Scholes's picture

Thought it was automatically a "distribution"

Paul Scholes | | Permalink

Steve - out of interest is it not the case that transferring an asset at undervalue to a participator will always be treated as a distribution, ie there's no need to do the dividend paperwork?  S125(?) CGTA 1992.

With regard to there being sufficient reserves I presume you would revalue the asset on transfer and then as the dividend is recorded the revaluation reserve become distributable...guessing as I've not had one of these for years.

Steve Kesby's picture

Paul    1 thanks

Steve Kesby | | Permalink

I think what you're probably thinking of is S.1064 CTA 2010 (formerly S.416 ICTA 1988) to treat a benefit (including the provision of an asset below MV) to a participator as a distribution.  That gets trumped though (because of S.1065) by the employment benefit in kind charging provisions if the benefit arises by reason of the employment.

I don't think S.125 TCGA 1992 would apply in this situation (to reduce the close company shareholders' shares' base costs) as it either falls in exception 2 or 3 of S.125(4).  I'd have thought that if S.125 applied, there'd also be a corresponding deemed transfer for IHT purposes (under S.94 IHTA 1984).

The point I was making was that to ensure that this is successfully steered pass an employment benefit, it needs to be clear to the world that it's a dividend (do it right and document it to death, in my view).

I agree entirely on the revaluation reserve point that any amount in the reserve relating to the asset to be distributed can be treated as distributable for the purposes of distributing that asset.  I hadn't considered the mechanics in any detail, but it's a very valid qualification to my previous comments.

Simpler way?

forgeron | | Permalink

Surely the easiest thing to do would be to take the dividend as a credit to the director's loan account and then purchase the building out of this account?

Paul Scholes's picture

Thanks Steve

Paul Scholes | | Permalink

More precisely (leading from S125) I'm thinking of S209 of ICTA88 (referred to in CTM15250).  This actually came up in another similar question last week and my memory (and CCH's helpline afterwards) made me think that transferring at undervalue to a participator would, automatically, be a distribution.

It seems however that this may not be the case and so each case it looked at on its merits?

Your IHT point is something I'd not even considered.

I am now "well warned" should a client ever approach me with this!  Thanks.

Simpler Way? - possibly not!

brian.barrett | | Permalink

Paying a dividend into a director's current account and then purchasing the asset using the balance in the current account may not work and may cause employment taxes to arise.

The company must have sufficient funds to pay the dividend when the dividend is paid.  As we are talking 2 events, any revaluation reserves are not distributable profits when the dividend is paid into the current account.

At that time the dividend is paid, the company may not have enough distributable assets - which if it was the case the payment into the current account would count as employment based income.