Good morning all,
I have a new client that owns a building personally, which the previous accountant has historically accounted for as an tangible asset of the Ltd business my client operates.
He is now looking to dispose of the business, currently getting ready for marketing the sale, and the agent has asked the question about the buildings ownership.
My client has confirmed that the building/land is ownered by him personally and therefore my question is, are the below options available, and are there any other options available;
Reinstate current and prior financial statements to reflect the correction, transferring the building/land asset value to the directors loan accounts (unless directors have the ability to acquire the building for cash consideration. If not then the directors loan account will also attract the following tax treatment in the company;
- Pay Corporation Tax at 32.5% of the outstanding amount, or 25% if the loan was made before 6 April 2016.
- Interest on this Corporation Tax will be added until the Corporation Tax is paid or the loan is repaid.
However, this is not all doom and gloom as there may be the ability to reclaim the Corporation Tax (but not interest), as and when the directors loan is repaid, however, this could be a lengthy timeframe between paying and reclaiming Corporation Tax, due to the time required to dispose of the business.
If the inclusion of the property within the financial statements doesn’t impede the potential disposal, all that is required is to transfer the ownership of the building, paper exercise only, to the company, effectively validating the financial statements.
When the disposal of the business takes place, the potential purchasers have the following options;
- Acquire the building/land: no further action required.
- Does not acquire the building/land: company disposes of the property to current business owner, consideration received by the business is by way of directors loan, disposal proceeds settle the directors loan account, with the remaining proceeds distributed to current owner.
Any advise would be greatly appreciated.