Can you transfer properties without SDLT or CGT?

Is there a legitimate scheme to do this?

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A client has contacted us regarding some advice that he received from his lawyer. His lawyer has a connection who is a tax expert and claims that our client can transfer numerous properties from his own name to his existing limited company, without incurring any capitals gains tax or stamp duty. It would also avoid any potential inheritance tax in the future. He's waiting for a meeting with the tax expert to hear him out.

For arguments sake, he owns 20 properties with a combined market value of around £5m. He purchased them over a twenty year period for around £1m. All properties are residential and rented out, managed by a management agent.

Does anyone know of any schemes that would make this possible?

Would incorporation relief be applicable? (I don't personally think so, but haven't dealt with it before)

Replies (17)

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By Ruddles
27th Feb 2017 12:17

There are indeed 'schemes' that purport to avoid SDLT - but they don't work.

Whether or nor incorporation relief would be available would depend on the precise facts.

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By MBK
27th Feb 2017 12:32

At this level incorporation relief probably would be available - thus removing the CGT problem.

However, if he's a solo owner then there is no way around the SDLT charge. Be very suspicious of anyone telling you any different.

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Replying to MBK:
By Ruddles
27th Feb 2017 12:39

The number of properties is not on its own sufficient for s162 relief. There is no information whatsoever (q'uelle surprise) about the OP's involvement in the 'business' - other than the vague reference to a management agent.

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Replying to Ruddles:
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By Dick Stastey
27th Feb 2017 12:50

Why does the OP need to be personally involved for there to be a business? Because HMRC say so?

I own a sweet shop, and employ a nice little old lady to run it for me. It is organised on sound commercial principles, and is an undertaking that is pursued in earnest (just not by me). Is it not a business?

I personally remain at a loss as to why, when considering something that has been transferred to a limited company, and is considered to be a business when it arrives in the company's, there was ever doubt that it was a business when it left the individual's hands.

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Replying to Dick Stastey:
By Ruddles
27th Feb 2017 13:07

I never said that the OP NEEDS to be personally involved. But it is certainly a factor that - whether you like it or not - HMRC and the courts may take into account, together with all of the other factors (of which we are currently blissfully unaware).

My point - as it often is - is not to agree with HMRC but to accept that where they have made public their views on certain issues one should not be surprised if they challenge treatment that is not in agreement with those views.

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Replying to Ruddles:
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By Justin Bryant
27th Feb 2017 16:04

Where do HMRC state this personal involvement requirement? As stated above, such an unqualified requirement cannot be right, as there is no such wording in s162 TCGA 1992 and it would be against the Disability Discrimination Act etc. as a mentally ill person would have to use an agent which would deny him s162 relief. It is also incongruous with the VAT definition of a business and pretty much all other legislative business definitions e.g. here:

http://ewriter.eu/articles/Baxendale.pdf

Also, I note that a "non-trade business" is easily found with agents acting per the case below (i.e. even with a tax avoidance scheme):

http://www.bailii.org/ew/cases/EWCA/Civ/2017/77.html

As to the scheme, that is simply to transfer the (offshore?) company shares to an offshore EBT in due course under s28 IHTA 1984 and s239 TCGA 1992. That is not rocket science.

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Replying to Justin Bryant:
By Ruddles
27th Feb 2017 13:49

Where did I use the word 'personal'? You and Portia are both missing the point - whatever you both may think about the merits of a claim for s162 relief, the OP hasn't given nearly enough information to establish whether or not it would be given without challenge. I'm not arguing with either of you, because there is no argument.

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Replying to Ruddles:
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By Dick Stastey
27th Feb 2017 14:27

Oh yes you are!

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By Lee11_1989
28th Feb 2017 10:29

Thank you for your help.

I'm aware that the incorporation relief can be a very tricky area. Not sure if it applies or not in this particular circumstance. I was under the impression that the Ramsey case in particular was won on the basis that they were personally responsible for managing the properties as a business, therefore proving it was a business instead of an investment.

It seems that you're in agreement that SDLT cannot be avoided when transferring the property from sole ownership to a limited company, which is what I already thought.

Looking forward to hearing out this 'tax expert' to see how he plans to avoid CGT and SDLT.

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By SteveHa
28th Feb 2017 10:53

I'm going to guess that the scheme being pushed is the one recently published in Tax Insider and other press. If it is, I suggest at least a barge pole's distance away.

As I see it, it doesn't work and will be caught by GAAR.

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Replying to SteveHa:
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By Lee11_1989
28th Feb 2017 12:42

I don't receive Tax Insider. Could you shed a little more light on the scheme that they published?

Thanks.

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By SteveHa
28th Feb 2017 14:00

It involves transferring beneficial ownership of a property to a limited company, without transferring title, effectively allowing the transfer to go ahead without SDLT/CGT implications, and allowing the individual to retain ownership (and maintain the mortgage) whilst enabling the company to claim mortgage interest relief.

The whole thing seems convoluted to me, with the only, or one of the main reasons being the avoidance of tax, which puts it firmly within GAAR IMO.

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Replying to SteveHa:
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By Dick Stastey
28th Feb 2017 14:20

It does no such thing, and if that is what the article suggests, it is just plain wrong. I'd suggest that you haven't read it properly though.

The GAAR is most certainly not needed.

CGT follows beneficial ownership, rather than legal ownership, as does SDLT courtesy of schedule 16.

All the so-called company beneficial interest trust does is avoid having to refinance the properties, but it could upset the lenders.

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Replying to Dick Stastey:
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By Justin Bryant
28th Feb 2017 14:16

SDLT is clearly not your strong point: that s/be sch 16 re bare trusts, although I obviously agree with the rest of what you say.

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Replying to SteveHa:
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By Justin Bryant
28th Feb 2017 14:12

But ignoring non-tax commercial (lender) issues, what possible difference does that make re GAAR or anything else re tax if this is all done in equity i.e. tax law will only look at the equitable position and will ignore nominees for the usual reasons?

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By Dick Stastey
28th Feb 2017 14:20

Obviously, if "the client" is a partnership (comprising connected individuals) there would be no SDLT on incorporation, and incorporation relief would be all the more likely to apply.

If you intentionally form such a partnership for that purpose though, you are likely to get caught by the SDLT anti-avoidance provision (rather than the GAAR that some seem so fond of).

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By SteveHa
28th Feb 2017 14:38

Regardless of the end result, the sole or main purpose of the arrangement DOES appear to be the avoidance of tax, and so will be caught by GAAR or TAAR, but it will be caught nevertheless.

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