Share this content
7

ER available on trading co with BTL property?

Does a co purchasing a BTL property in a trading group jeopardise entrepreneurs relief?

Didn't find your answer?

Hi all,

I seem to be getting in a bit of a mix here and wondered if someone on here might be able to clarrify something for me.

I have a client with a co structure Topco->Trading Co 100% ownership. Topco does does nothing other than hold the trading co and receive dividends. 

The client wants to purchase a buy-to-let property from the cash pile sitting in Topco and is considering either purchasing the property in topco, or lending the money to a separate co (owned by the same shareholder) that will then purchase the property.

My understanding is that the direct purchase would jeapardise the availablilty of entrepreneurs relief as the assets in the top co would be more than 20% non-trading. Similarly the loan would do the same as it is also a non-trading loan.

But then if there is excess cash in the company that would also jeapardising it. 

Am I missing something here?

My thanks in advance...

Replies (7)

Please login or register to join the discussion.

Hallerud at Easter
By DJKL
29th Jul 2020 16:55

When is excess cash not excess cash?

Required working capital is quite a flexible concept and there are a fair few arguments that passive cash ought not put ER at risk anyway, of course there are the other arguments that it does.

Being slightly flippant here, but I have heard this argued, if your client was a member of say one of the Brethren sets, had commercial premises that he refused to insure due to his religious beliefs (thwarting God's will) and accordingly the business carried say £800k in cash to if need be rebuild the premises if they burned down, would that be excessive cash?

Thanks (0)
Replying to DJKL:
Psycho
By Wilson Philips
29th Jul 2020 17:22

Can’t recall the case citation right now but court/tribunal recently decided that cash is largely unimportant in such matters.

Thanks (0)
Replying to DJKL:
avatar
By Tax Dragon
30th Jul 2020 07:06

I may be confusing myself, but isn't what you say here more relevant to BPR (or is it now BR... everything seems to be being renamed)?

Excess cash might be an excepted asset. But an investment property is likely to cause a complete loss of any relief that's currently available.

(While this wasn't the OP's question, and while possibly (hopefully!) IHT is expressly outside the scope of the engagement, the point is worth noting here, I'd say.)

Thanks (1)
Psycho
By Wilson Philips
29th Jul 2020 17:40

When considering the ER (now BADR) status of the shares in Topco you need to look at the group as a whole, not just the company in which the non-trading assets are held.

You might already have done so - it isn’t clear from your post.

Thanks (0)
avatar
By whitevanman
29th Jul 2020 23:05

I think you need to look at the legislation and then the HMRC guidance on the subject.
What you will find from the former is no reference to assets or cash 20% or otherwise. Rather, relief is based on "activities". What you will find from the latter is that the amounts of cash and non-trading assets are simply factors that may be relevant in establishing precisely what activities are carried on and the extent of any non-trading such. It is a balancing act based on the specific facts of any particular case.

Thanks (0)
Replying to whitevanman:
avatar
By Tax Dragon
30th Jul 2020 06:55

And doing something with the money - lending it, using it to buy property, etc - is more of an 'activity' than simply leaving it at the bank. (There's a clue in the word 'doing', but more importantly HMRC certainly and case law probably see it like that.)

So, as I see it, there's a sliding scale of risk. Keep as cash, low risk; lend and leave, medium risk; buy and let (an ongoing business, but non-trading, activity), high risk. Would you agree?

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
30th Jul 2020 07:20

Perhaps it would be better to describe it as a sliding scale of activity. Cash at the bank, minimal activity; cash on loan, there's more activity (you might need to consider possible tax liabilities under the s455 group of charges, you might need to consider impairment issues, you might need to consider company law - in short, there's more monitoring to do, and doing is an activity word); buying, maintaining and letting property - more activity again.

Obviously if the tradeco has 100 staff toiling away on the trade, then that dwarfs any of the above. BADR would be untroubled.

You'd still likely lose BPR/BR. Your starting point there is the company whose shares you hold - topco.

Thanks (0)
Share this content

Related posts