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Will this property sale qualify for E.R.?

A trading company in which both husband and wife are shareholders.

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The wife intends  to sell her investment property to their company as part of her phased retirement. The property has always been used as the company’s business premises so E.R. should be available.

One of the conditions for her capital gain to qualify for ER as an associated disposal, is that the sale must be part of a wider disposal of the business. In order to satisfy this condition, she intends to sell  10% of her shares in the company for now, and the rest next year.

Would a share buyback still count if their company buys back  10% of her shares?  Her husband intends to remain as majority shareholder for a couple more years before he retires.

 

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By Tax Dragon
28th Nov 2020 08:53

.

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By mjshort
28th Nov 2020 08:54

the Sale of her investment property:

Investments do not get ER.

It will be taxed at market value (as a transfer to connected party).

ER will not be available unless its been rented to the company at zero rent.

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Replying to mjshort:
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By unearned luck
29th Nov 2020 12:55

"ER will not be available unless its been rented to the company at zero rent." This is both an oxymoron and wrong. For there to be no restriction as regards rent then it must be occupied by the company rent-free. But a rent per se does not deny relief. BADR is only restricted on a just and reasonable basis. For example if the rack rent is £10K but the rent paid is £5K then J&R to me points to a 50% restriction in relief. If the occupation at a rent dates back to taper relief days then a temporal adjustment will also be required as charging a rent didn't restrict taper relief.

What if the company has a lease specifying a rent of £10k, but the company only paid £5K (as might be the case if the landlord/directors/shareholders/ wished to restrict income taxed at 20/40/45%) would the J&R adjustment be on the rent paid or the rent in the lease?

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Replying to unearned luck:
By mjshort
29th Nov 2020 19:41

I don't see how a peppercorm rent is an oxymoron. Howver, my answer was too simplistic it should have been 'Full ER' not just ER.
That aside, its the rent actually paid as a proportion of market rent that would restrict the relief .

As Taper Relief went out in Apr 08, if the property has been held that long then the gain would probably be a large one. Specialist advice would be worthwhile in that case .

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Replying to mjshort:
Psycho
By Wilson Philips
29th Nov 2020 20:11

You didn’t say peppercorn rent - you said zero rent. There is a difference.

That aside, I agree.

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By Adam12345
28th Nov 2020 10:24

Has she been charging rent to the limited company for the use of the property?

If their share holding is 100% before the buy back and 100% after the buy back, I don't see how there is a material disposal of business assets.

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By unearned luck
30th Nov 2020 01:17

wouldn't it be simpler and cheaper (in tax and fee terms) to do nothing now and next year other than to appoint her a director, if not already one, and ensure that she remains one until the company is sold or liquidated. Then she can retire as an employee without fear of losing entitlement to BADR.

If motivated by a fear of the abolition of BADR, then take comfort in the OTS's suggestion that retirement relief is reintroduced in its stead and if fearful of an increase in CGT rates then note that any significant increase in rates would have to come with a mechanism to not tax inflationary element of gains for it to be seen as not unfair.

No guarantees, of course.

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By Tax Dragon
30th Nov 2020 06:38

And don't forget Cleary.

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Replying to Tax Dragon:
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By unearned luck
05th Dec 2020 17:54

Are you suggesting that the property sale to the company would be a transaction in securities or are you referring to the 10% share sale? Wouldn't the anti-phoenixing TAAR be more likely to be applied by HMRC to the 2nd transaction?

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By Mike Smith1
04th Dec 2020 16:44

Thank you all, for your views.

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