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Transfer of Property to a Subsidiary to Develop

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My client company has a commercial property that is currently been rented out, it has a small mortgage on it.  He would like to set up a subsidiary, 75% owned by his company, 25% owned by another investor, pay off the mortgage and transfer the property to this subsidiary.  The investor would put in some funds to help develop the property.  The idea would be to knock down and develop the property into residential housing and then sell the houses.

Are there any HMRC clearances or other tax implications my client should be aware of when transferring the property? 

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Hallerud at Easter
By DJKL
01st Jul 2020 00:04

What/how is proposed sub to pay current company for the asset?

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By BryanS1958
01st Jul 2020 16:25

It depends, I assume it goes across at cost for corporation tax purposes. Ideally the accounts would show a loan account for the transfer of this cost, but it could be transferred at Nil for accounts purposes if this is beneficial. I think there is no stamp duty on transfers of property within a group, but not my specialist area.

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By Tax Dragon
01st Jul 2020 18:04

BryanS1958 wrote:

I assume it goes across at cost for corporation tax purposes.

I'd be interested to know whether that assumption is correct. Do you mind posting back when you have confirmed the position?

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By Ben McLintock
01st Jul 2020 12:05

Google "tax on transfer of assets to subsidiary" or such like. There's loads online about capital gains groups.

Don't forget SDLT.

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By Tax Dragon
01st Jul 2020 12:13

Although one company is disposing (selling?) a capital asset[*] and one acquiring (buying?) stock. That's not your bog standard situation, so I would say use Google with caution (and Aweb with care).

[*] assumption alert.

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Hallerud at Easter
By DJKL
01st Jul 2020 12:38

Any shares being issued to holdco in exchange for the property and for the other investor injecting cash into sub?

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By BryanS1958
01st Jul 2020 16:28

No, the current intention would be that the subsidiary is set up for, say, £100 shares at par, with 75 being owned by the holding company and 25 by the external investor company. After it is set up the property would be transferred from the holding company to the subsidiary.

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