Property Development Company Tax Impact

Buying land and building a development but not selling tax impact

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Newly created Ltd company formed by 2 shareholder (50/50 holdings) where it's sole purpose is to buy land and build 5 properties.  Development is now complete and 1 shareholder agreed to sell his shares to the company and the company will look to buy the shares using a loan (potentially bank loan) secured against the properties. 

1) Is the Ltd co allowed to buy back shares with loans or does it have to be from retained earnings only?  

2) Can the property be transferred to another company owened by the same shareholder without trigerring corporation tax (under group relief) and does SDLT still apply?

3) Does anybody know if you can actually get a mortgage under the Ltd company for completed property but not sold? Effectively the owner looking to rent these out and keep it in the company for many years to come instead of selling the completed properties.

Many thanks in advance.

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By Wanderer
17th Nov 2020 07:46

snazzy
Member Since: 15th Oct 2015

snazzy wrote:
Property Development Company Tax Impact
Buying land and building a development but not selling tax impact

Newly created Ltd company formed by 2 shareholder (50/50 holdings) where it's sole purpose is to buy land and build 5 properties.  Development is now complete and 1 shareholder agreed to sell his shares to the company and the company will look to buy the shares using a loan (potentially bank loan) secured against the properties. 

1) Is the Ltd co allowed to buy back shares with loans or does it have to be from retained earnings only?  

2) Can the property be transferred to another company owened by the same shareholder without trigerring corporation tax (under group relief) and does SDLT still apply?

3) Does anybody know if you can actually get a mortgage under the Ltd company for completed property but not sold? Effectively the owner looking to rent these out and keep it in the company for many years to come instead of selling the completed properties.

Many thanks in advance.

https://www.accountingweb.co.uk/any-answers/shareholder-loan-or-equity-a...
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By Tax Dragon
17th Nov 2020 08:09

That was one fast development.

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Psycho
By Wilson Philips
17th Nov 2020 08:44

1) How the company finances the buyback has nothing to do with retained earnings.

2) No, yes.

3) Yes

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By Wanderer
17th Nov 2020 08:51

3) Wonder if the OP has considered the VAT issues. Could be one of many expensive mistakes which could be avoided by appointing an accountant.

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By Paul Crowley
17th Nov 2020 08:56

Time to get an accountant and go through your options and the couple that he will think
of.
He will probably save you money, based on the options you suggest.

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