Share this content
11

Transfer of land into new SPV

Didn't find your answer?

Hello Accountingweb community,

 

I wonder if you might share your thoughts on a matter.

I have a client who owns a limited company, which owns land (cost £36,000 some years ago). 

A developer has approached my client interested in working together to build properties on the land. The property developer has suggested that my client creates a new limited company (SPV) owned 50:50 and transfer the land into it. The property developer will buy his share of the new business for £36,000.

Are there any tax implications associated with this transfer?

SDLT on Newco

Capital Gains tax on Currentco - does the land need to be valued to establish Market Value and then attract CGT (/ Corporation Tax because it is a limited company)

The new company is not a subsidiary of the current company.

 

Any other thoughts or suggestions?

Kind regards

Daniel

Replies (11)

Please login or register to join the discussion.

chips_at_mattersey
By Les Howard
16th Dec 2019 13:49

You should ask about VAT too -if the land is not opted then input tax on legal fees, etc cannot be recovered. Do you want to charge VAT to the SPV, and then try to recover?
Should you consider a VAT Group? A sole trader can be in the same VAT Group as a subsidiary now.

Thanks (0)
Replying to leshoward:
avatar
By Daniel Anderton
16th Dec 2019 13:57

Good point, thanks Les, I hadn't considered the VAT impact.
The land is not currently opted.

Thanks (0)
avatar
By The Dullard
16th Dec 2019 13:56

The property developer is buying a 50% stake for £36,000. He must have seen your client coming.

Yes. There's CGT. There's income taxon the distribution too. And there's probably SDLT too.

Drop it into a subsidiary and do a joint venture agreement with the developer.

Thanks (0)
Replying to The Dullard:
avatar
By Daniel Anderton
16th Dec 2019 14:06

Thanks Dullard,

In short, the land is green belt and the property developer may be able to sway planning permission. At the moment, the land isn't really worth anything, but the potential should planning permission be achieved = £££.

When you say "Drop it into a subsidiary", do you mean to avoid SDLT and CGT?

Thanks (0)
Replying to Daniel Anderton:
avatar
By The Dullard
16th Dec 2019 14:22

Yes. It won't work for SDLT purposes though if there are arrangements in place for the company to cease to be a member of the group (eg by issuing enough shares to drop it below 75% ownership), and for CGT there would be a degrouping charge.

If the value is only £72,000 though, sell it into Newco, leaving the £72,000 outstanding as debt. Pay the SDLT (non-residential rates apply) and suffer the CGT, using the £36,000 cash from the developer to repay part of the loan for OldCo to use to pay the tax.

A market value sale avoids any question of there being a distribution.

Thanks (0)
Replying to The Dullard:
Hallerud at Easter
By DJKL
16th Dec 2019 14:23

Do you have SDLT at £72k, surely below threshold?

Thanks (0)
Replying to DJKL:
avatar
By The Dullard
16th Dec 2019 14:25

You are correct. It's still within the nil rate band, applying non-residential rates. I'd clocked that it was more than £40,000, meaning a return is required, but hadn't thought it through any further.

Thanks (0)
Hallerud at Easter
By DJKL
16th Dec 2019 14:10

Why £36,000 for 50%, is this merely what your client paid, does it have any bearing on likely current value? If it had planning what would it likely be worth, how much to get that planning, is your client needlessly foregoing any planning gain uplift by getting into bed with the developer now, should he play harder to get?

Why did your client's company buy the land in the first place, what, if any, use has it made of the land in the intervening period?

Apart from the development any connection between shareholders of current co owning land and the prospective partner in the new company?

Where is the land, its size, how many residential units likely,anywhere near Edinburgh etc. If on the off chance it is up here PM me as we are always on the lookout for deals, especially with low front end costs and with the suspicion there might be a less experienced seller? (Knowledge is power)

I do not want to be glib but no self respecting developer is dropping £36k on something unless reasonably certain he/she can get planning and if planning is available then financially your client ought to consider if they ought to get it themselves before selling to anyone, we always tend to make more profit on the planning gain than the actual building out, so why does your client need the developer would be my question?

Thanks (0)
Replying to DJKL:
avatar
By Daniel Anderton
16th Dec 2019 14:50

Yes £36k is what my client originally paid for the land. The land has not been valued to establish a current market value, however it has been owned for a number of years, is greenbelt and does not have planning permission.

Client is very early in negotiations and has asked for advice. Commercially I agree with your comments and I have asked these questions. The developer believes that relationships he/she has could speed up any planning process.

The new party is not connected to the current ownership structure.

The land is in the West Midlands.

The main reason for needing the developer is for his/her sway in terms of gaining planning.

Thanks (0)
Replying to DJKL:
avatar
By BromleyBob
16th Dec 2019 14:53

DJKL wrote:

no self respecting developer is dropping £36k on something unless reasonably certain he/she can get planning and

If the land is worth, say, £50k without the planning then the developer is potentially only risking c.£11k on the land (plus 50% of planning costs) so, for example, we (as land developers) would easily be happy to do it on a 50% chance of planning.

If it's in the South East then please PM me, Daniel, and I could give you an indicative offer in 24 hours.

Thanks (0)
Replying to BromleyBob:
Hallerud at Easter
By DJKL
16th Dec 2019 15:06

You have all your planning costs as well and of course its amazing the reports that need commissioned like the wonderful bat reports or study of types of squirrels, so there are other costs that can add up.

However I would repeat to the OP, most of our development gains have been at planning stage , profit on the building out tends to be far lower (maybe only 20-25% of build cost) whereas planning gains-skies the limit. He/she, at the very least ,should chat through with a decent agent or planning consultant before embracing the developer.

Thanks (0)
Share this content