Entrepreneur’s relief on MVL liquidation

Client close company acquired site for residential development. Sold site prior to developing.

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My client is a SPV (close company) set up to acquire a site for residential apartment development. It registered for VAT as a property development company, incurred architect's fees etc over several years in gaining planning permission but has now decided to sell the site rather than build and sell the completed apartments. It will pay corporation tax on the profits on sale and will have to repay the VAT previously reclaimed as it will be an exempt sale. The intention is then to liquidate the company and hopefully pay only 10% CGT on the shareholder receipts under Entrepreneur's Relief. Does anyone see problems with this, for example that the company may be seen as non-trading (so the shareholder receipts could be taxed as income) given that although the original intention was to build out and sell, this never actually happened?

Replies (11)

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By Montrose
01st Feb 2024 14:32

FA 2016 S.35 is a probably insurmountable hurdle to paying CGT at all, let alone enjoying Entrepreneurs relief.

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Replying to Montrose:
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By malcolmslinger
01st Feb 2024 15:20

Thank you. This is the only such venture undertaken by the 3 shareholders and no further ones are planned. I thought this may take the proposal out of the scope of FA2016 S.35.

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By DKB-Sheffield
01st Feb 2024 14:44

I know it's not the question but...

If the site is being sold to another developer, why would you be considering an exempt sale? OTT may be in point (which will take time to come through) but, a developer would likely be able to reclaim the input. Could be a costly option otherwise.

Was the land Opted prior to purchase? Did the client reclaim input VAT on that as well?

Maybe I've missed something, or not thought it through (head's still a bit muffled).

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Replying to DKB-Sheffield:
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By malcolmslinger
01st Feb 2024 15:17

Thank you for your help. An exempt sale was planned because the VAT amounts are not too sizeable and it was felt that the cash flow disadvantage for potential purchasers of a taxable sale could be a deterrent to offers. The land was not opted prior to purchase as it was a residential property, purchased from the householder.

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By SteveHa
01st Feb 2024 15:13

The immediate issue is that Entrepeneurs Relief no longer exists.

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Replying to SteveHa:
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By malcolmslinger
01st Feb 2024 15:23

Ok, the new name, Business Asset Disposal Releief.

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By nrw2
01st Feb 2024 15:29

malcolmslinger wrote:

the company may be seen as non-trading (so the shareholder receipts could be taxed as income)

Non-trading does not in itself prevent distributions being taxed as capital in the hands of an individual shareholder

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Replying to nrw2:
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By malcolmslinger
01st Feb 2024 16:10

Thank you - but it would prevent the claiming of Business Asset Disposal (Enterpreneur’s) Relief?

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Replying to malcolmslinger:
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By nrw2
01st Feb 2024 16:49

Yes!

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By kim.shaw-and-co.com
01st Feb 2024 21:02

Has the land always been held in trading stock ... or was it appropriated to fixed assets as an investment property ?

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Replying to kim.shaw-and-co.com:
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By malcolmslinger
02nd Feb 2024 06:11

The land has always been held as trading stock. The company is only required to produce micro entity accounts due to its size but the filed accounts have always shown the asset under “current assets” (no further analysis is required in micro entity accounts).
The decision to sell rather than develop was taken by the directors in response to changing market conditions.

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