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Transferring property between companies

Transferring property between companies

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We have a DIY client (you've met these) who has a trading company and has set up a "holding company" that doesnt hold any shares in the trading company?

Our client though has been succesful in their chosen trade and have been offered £500,000 to sell up. The company has £200,000 in the bank and £250,000 of commercial (mortgage free) property on the balance sheet. Our client would like to sell the trading company, claim ER and have the cash and property transferred to the "holding company". 

My plan is create a small B holding in the trading company, sell this to the other (holding Comp), dividend the cash via B shares to the other co, and dividend the property in the same way, then sell the remaining company less its assets. Does the dividend in specie avoid any SDLT on the property, what value would be applied to the property on transfer. 

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By Duhamel
25th Jun 2019 13:43

I think you have a transaction in securities issue with your plan, possibly also value shifting. The other thing might be whether there are distributable reserves to cover these transactions.

In answer to your last question, if it is possible to do this, it would be a transfer at net book value.

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By CW2012
25th Jun 2019 14:48

Thanks, I agree there might be considered to be value shifting, its the in specie dividend of property that I cant seem to get my head around. No SDLT, CGT, no tax on the dividend as its between companies, seems to good to be true.

Is it.

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25th Jun 2019 15:19

You seem to want someone to come back at you with some heavyweight anti-avoidance, but I'm not convinced you have thought through (or, maybe, understood) the basics. For anti-avoidance to be in point, your plan needs to avoid tax.

Some say that SDLT on in specie dividends can be avoided with careful drafting. I think in your scenario, even careful drafting might not be enough, but I'll leave you to discuss that with the draftsmen.

When you say "no CGT" (presumably, you mean "no CGT other than on the value shift"), is that because you accept that the gain would be liable to CT?

Having said all that, I'm pretty sure that atlea has proposed this plan in here before. If so, he'll be able to tell you straightaway why it doesn't work.

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to Tax Dragon
02nd Jul 2019 17:09

Tax Dragon wrote:

Having said all that, I'm pretty sure that atlea has proposed this plan in here before. If so, he'll be able to tell you straightaway why it doesn't work.

Erm ... I looked into it at the time, then promptly forgot as it didn’t work. I only have 2 clients that cause me such issues (unfortunately my biggest 2 clients). Transaction in Securities anti-avoidance I think.

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By CW2012
25th Jun 2019 15:28

Thanks Tax Dragon
Unfortunately I'm not a Tax Dragon, just a general practitioner. The bit I'm wobbling on is the tax treatment of the in specie dividend, ignoring everything else, if a company A settles a dividend to Company B by way of a property not cash, where's the tax, using cash there isn't any but what about property. I'm comfortable with the idea of it being a distribution so no SDLT but what about CGT, would company A pay CGT but company B treat it as income, seems odd to me. Every day is a day in school.

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to CW2012
25th Jun 2019 15:34

As I understood it, you need to avoid it being the settlement of a (cash) dividend in order to avoid SDLT. That's where the careful drafting comes in. But I would leave that to someone else.

A Ltd is disposing of property. Disposals of property are within the remit of TCGA. Value brought into account for TCGA would be market value. How B Ltd treats it is irrelevant to the disposal.

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By CW2012
25th Jun 2019 15:51

Thanks, funnily enough it turns out that SDLT isn't an issue in this case as the property is actually worth £140k, over ambitious client. So A Ltd would end up with a Capital Gain, not too bad as it would lift the starting point of a future disposal, on £140k there cant be that much of a gain anyway. I take your point of the drafting of the dividend, it feels a bit tricky. Maybe next time.

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to CW2012
25th Jun 2019 16:09

Oh my, that's rapid depreciation! Give it a couple more hours and you'll probably realise it's only £30k....

The tax that you are avoiding is dividend tax if the property were to be distributed to the current shareholder. That's where the TiS rules come in, as my right honourable friend mentioned above. (I've been discussing the basic tax rules, not the anti-avoidance ones.)

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01st Jul 2019 16:42

I thought when you moved property between group companies it was at no gain no loss.... did I miss something?

Is it owner swops shares in subsid for shares in Hco so no tax as its share for share and no change in ownership

Then dividend the cash up from the reserves. no tax

Then move the property as a dividend? or someother way which means no tax/ sdlt?
is that the plan?

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to Tom 7000
01st Jul 2019 17:29

You missed the bit where the OP's DIY client thought ER would be in point.

Although, reading the question again I had myself rather missed the cash-staying-in-the-company bit.

Draw?

EDIT no, surely that was the £200k cash at the bank?

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to Tax Dragon
01st Jul 2019 21:09

I think I would
Maximise pension contributions in existing co. Claim CT refund by carrying loss back
Set up H co no tax
Hive up the cash tax refund and property..no tax
Sell the subsid and claim substantial shareholder exemption. No tax
Then I have h.co packed full of cash and so either
1. Liquidate and get entrepreneurs relief 10% if I was in a hurry
B. Dividend it out to me and Mrs 100k a year till it was gone 5% tax.. then not 10%... might save 50k?
iii. Go live in Portugal and pay it all out there tax free... and the pension too. Come back on 6 years and take advantage of his services when needed.

SOME HOOPS TO JUMP THROUGH.. but how much tax do you want to pay and how soon do you want it?

If you want to pay a lot of tax to help the government with #brexit costs declare it all as salary in one year....

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to Tom 7000
02nd Jul 2019 16:38

All things to think about, but SSE and ER have some conditions that need to be met which they would struggle to do so in such a short period of time. Hold co unlikely to ever qualify for ER as not trading.

There is also the issue around 'wholly and exclusively' for pension contributions.

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By CW2012
02nd Jul 2019 12:59

Our much loved client has now changed tack, faster than a canoe in a storm, anyway they now want to "sell" 49% of the shareholding of the trading co to the existing staff, these staff don't have any money so the company will borrow £300k ish and lend it to the staff who will buy the shares. Repayments of the loan will be made in dividends forgone, amongst other things this puts the cash balance at £500k in the company. The directors cant seem to come to an sensible decision on the way forward, so we have a remaining 51% shareholding to transfer to a holding co, a commercial low value property and £200k bank balance. ER required too on the disposal of the 49% and desire to retain ER on the other 51% of a holding co that will be buying rental property. Anyone care to unwind these issues.

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to CW2012
02nd Jul 2019 13:47

Wait till the storm in your client's head subsides and comment on a sensible plan if one ever emerges.

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to CW2012
02nd Jul 2019 14:03

So the staff are going to repay their loans by foregoing dividends that the company can't afford to pay?

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to CW2012
02nd Jul 2019 16:45

Employment Related Securities.
Transactions in Securities.
Holding co unlikely to meet the ER requirements as not trading.
Unless the new shareholders like paying income tax, it will take sometime to clear the loan.

What your client needs is a time machine and a share for share exchange.

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By CW2012
02nd Jul 2019 13:58

Thanks Tax Dragon

You wouldn't care to breath fire on them would you, there's nothing worse than a DIY / my mate says client. Had a CIS client in the other day, he was unhappy with his tax refund because his mate got £3k, what can you say.

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to CW2012
02nd Jul 2019 15:38

I lit that penguin's cigarette just by breathing.

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By CW2012
02nd Jul 2019 17:12

Thanks for the replies, I'm off to run screaming into the hills.

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