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Sale of a Domain name to your Ltd Co

Income Tax or Capital Gains Tax

Individual is selling a domain name to his Limited company (trading).

The Domain name is already being used by the Limited company as in there is a website built etc.

I do not believe there is any payment to the individual for the use of the domain name.

He is selling it for £11,700 and believes it is a capital disposal that falls below the AE.

Is this a capital disposal or could there be income tax implications?

 

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14th Mar 2019 12:38

Is the market value £11,700? Seems a bit of a coincidence.

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14th Mar 2019 12:43

How lucky that the value comes in at exactly the CGT annual allowance! Not suspicious at all, that.

I'm guessing a domain name is an intangible asset. How you would value that asset is a tough one. Obviously if he pays himself more than it's worth then there are income tax consequences, irrespective of whether it is a capital asset or not.

Ask him (keeping a straight face, if possible) for a copy of his calculation of the value.

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14th Mar 2019 13:36

If you don't have a valuation to back up that figure, HMRC will be down on it like a ton of bricks.

Transfers of personal assets to companies is an area I've seen them crack down on a lot in recent years. If you don't have a solid valuation to back up the figures used, it's usually an easy win for them.

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14th Mar 2019 14:39

Apparently, it is just a coincidence that his valuation of the open market value of the domain name is the same as the AE threshold. There is no independent valuation to support this though.

Guess this leaves us still in a pickle as to the tax treatment of the proceeds??

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to Wall1690
14th Mar 2019 16:22

Wall1690 wrote:

Apparently, it is just a coincidence that his valuation of the open market value of the domain name is the same as the AE threshold.

Oh, come on! You don't really believe that do you?

Wall1690 wrote:

There is no independent valuation to support this though.

Never mind an independent valuation, where is your client's valuation? If he doesn't even have some numbers scribbled on a sheet of A4, do you really think there is any attempt at a proper valuation?

Wall1690 wrote:

Guess this leaves us still in a pickle as to the tax treatment of the proceeds??

One way or another (earnings or dividend) they are subject to income tax unless there is some big reveal of new information.

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14th Mar 2019 16:50

No I don't believe his valuation is accurate. But, if it were, am I correct in saying that any proceeds would be subject to CGT, subject to AE, as opposed to Income Tax?

And there remains a danger that HMRC could reclassify any proceeds as income (if they are not satisfied with the valuation) & charge the proceeds to income tax?

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to Wall1690
14th Mar 2019 17:16

Wall1690 wrote:

No I don't believe his valuation is accurate. But, if it were, am I correct in saying that any proceeds would be subject to CGT, subject to AE, as opposed to Income Tax?

And there remains a danger that HMRC could reclassify any proceeds as income (if they are not satisfied with the valuation) & charge the proceeds to income tax?

You say that you "don't believe his valuation is accurate". In my view, therefore, you either proceed on the basis that the value is zero or work with the client to reach a value which has some credibility (ie, based on some facts and reasonable assumptions). What you obviously don't do is simply accept the figure the client has given you.

I think the main danger is that your client could be guilty of submitting a deliberately incorrect return. We have a system of self assessment which requires taxpayers to submit returns on a basis that they can justify as correct. It's not up to HMRC to spot deliberate incorrect returns.

CGT (if I recall correctly) charges gains not otherwise chargeable to income tax so you are starting at the wrong end.

The tax at stake is pretty modest in the scheme of things. Explain to your client the interest and penalties that he might incur and hopefully he will see sense.

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to Wall1690
15th Mar 2019 08:18

Wall1690 wrote:

But, if it were

Wall1690 wrote:

... am I correct in saying that any proceeds would be subject to CGT, subject to AE, as opposed to Income Tax?

And there remains a danger that HMRC could reclassify any proceeds as income (if they are not satisfied with the valuation) & charge the proceeds to income tax?

Yes.
(NB as others on here will testify, my approach to tax is more of a practical/useful nature than of a legislative one, so take my answer with a pinch of salt)

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