Share this content
0
472

Client Owned Asset

Client Owned Asset

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;

Option 1

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.

Option 2

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.

Replies

Please login or register to join the discussion.

21st Nov 2018 11:22

I think you need to find out first whether the purchaser wants the property as well as the company. That will dictate most of what should happen next.

Thanks (0)
avatar
to johngroganjga
21st Nov 2018 11:32

I have to agree.

I also find myself wondering why the client sought a new advisor at this critical time; it's an AML flag on our system.

Thanks (0)
avatar
By HandC
21st Nov 2018 11:48

The client has been in business since early 1990's, and the previous accountant added the building asset in 2003. The clients previous account retired in 2017, at which point they came across to me.

The client has now decided that they would like to consider retirement and are looking to dispose of the business, including the property, if the buyer is willing to acquire the property, however, my client is also happy to retain the building and just dispose of the business.

Current position is that no buyer has been sought, and the agent is currently looking at marketing the business for sale early 2019, and raised the question of building ownership.

Thanks (0)
avatar
to HandC
21st Nov 2018 11:54

So... what happened (and why) in 2003? Was it wrong? You can't just add assets without recognising liabilities.

Thanks (0)
By DJKL
to HandC
21st Nov 2018 11:58

Supplementary- did you client purchase building in 2003 or did his accountant merely post it into the accounts at that time?

How was its purchase funded, was there a loan, in whose name was loan and how were interest/loan treated in company if on point?

Thanks (0)
By DJKL
21st Nov 2018 11:53

Why is it in accounts?

How long has it been in accounts?

What cost figure was used when it entered accounts?

Does that differ much from current value?

Did Client/his accountant make a return re disposal to company when above event happened?

Imho if all in error then section 455 issues do not just arise now if property corrected out now, they potentially arose in the past as funds presumably credited to a director's loan account re introducing property were at that juncture withdrawn.

Thanks (0)
avatar
to DJKL
21st Nov 2018 11:55

2003 is when SDLT came in.

Coincidence?

Thanks (0)
avatar
By HandC
21st Nov 2018 12:56

Apologies, the date was 2013 not 2003, at which point the client took out a loan with its banks, interest charged to P&L etc, however, the client advised me that the loan was for working capital.

Loan value Approx £300k
Market value of building £200k when introduced into BS
Cost Approx £150k

As far as I'm aware, no disposal CGT was accounted for in tax returns etc.

Thanks (0)
By DJKL
to HandC
21st Nov 2018 13:13

Did the bank loan not go to repaying the director's loan which presumably was increased as follows:

Dr Property £200,000
Cr Director's loan £200,000

When did director actually buy the property before passing in to company and for how much?

Thanks (0)
avatar
to HandC
21st Nov 2018 13:20

I think we are still lacking some of the double entries;

When the bldg was introduced:
Dr Fixed Assets
Cr ???

Who took out the bank loan and received the £££? The client or the company?
Who repaid it?

Thanks (0)
Share this content