Tax charges property to director at undervalue

Tax charges property to director at undervalue

Didn't find your answer?

What are the tax consequences where a property development company transfers a property it has developed (a new build which it cannot sell) to a 50% shareholder /director at an undervalue?

Property is worth £250,000 but the director can only obtain funding for £200,000 and does not have any other means. So the company is going to sell the property to the director for £200,000.

I believe the company has to return a profit based on the market value of the property of £250,000 and that the director has a benefit in kind charge of £50,000. The benefit in kind charge is than an allowable deduction against the company's profits. Is this correct?

Any replies will be gratefully appreciated.

Danny Boy

Replies (2)

Please login or register to join the discussion.

David Winch
By David Winch
28th Jan 2009 16:10

Company law

The company and (especially!) the director making the purchase should both be advised to get legal advice to ensure that the sale to the director is approved by shareholders as required by company law as a "substantial property transaction" with a director - sections 190 to 196 Companies Act 2006.

If the sale is not approved by the shareholders the director is liable to pay to the company any profit he makes from the transaction. Also the company may reverse the transaction at a later date. (This is particularly important if the company later changes hands or goes into liquidation!)

David

Thanks (0)
avatar
By User deleted
28th Jan 2009 09:34

Value Shifting
I think that the director will be assessed as receiving a £50k dividend as the value has been shifted out off the company. If the £50k is left outstanding (to get BIK/loan tretament) HMRC are likely to challenge that as it is unlikely to get repaid

Thanks (0)