Transfer of assets company to company

love2learn

Hi,

Two companies, Company A and Company B. Company A develops land and builds houses at a cost of £195,000 per house, and then transfers some of those houses at a price of £195,000 from Company A to Company B.

The market value of the houses is not £195,000, and the real market value of the houses is £400,000+

If the sale price of the houses shows as £195,000 on the land registry due to being transferred from Company A to Company B at less than the realistic market value, is this an illegal tax dodge?

Or would that be legal?

00ec25

assuming A and B are related, then it's called transfer pricing

read on, it can get complex.... https://www.gov.uk/guidance/transfer-pricing-transactions-between-connected-companies

love2learn

Ok reading that, it seems that this is totally legal and not a tax dodge if the limited companies are SME's?

So Company A can use a Transfer price of £195,000 per house to Company B even though they are related and the fair market price between two independent companies would have been double the transfer price, if their turn over is less than the SME threshold. Which means they can basically get away with it.

Another legal tax dodge.

uknick

Get away with what? Company A not paying tax on the profit on the house?


What will B do when they come to sell it?


I thought the way large corporations use transfer pricing as a way to reduce profits before tax is to inflate the transfer price from a company based in a lower tax area to a company in a higher tax area.

Pennywise

You've just transferred it between two companies owned wholly or mainly by you. What have you achieved? You've not yet sold it to a third party, so why is it a "tax dodge"? When the second company sells it, it will have to pay tax on the sale price less the original £195k. I can't see where you've saved any tax?

00ec25

love2learn wrote: »

So Company A can use a Transfer price of £195,000 per house to Company B even though they are related and the fair market price between two independent companies would have been double the transfer price, if their turn over is less than the SME threshold. Which means they can basically get away with it.

Another legal tax dodge.

what?

you mean they can "get away with" delaying paying tax until the property is sold to a real buyer? Yes they can. Now explain how that is a tax dodge since the profit on the sale made by B will still be the same as that which A would have made had a sold it to a buyer themselves.

the complexity arises where A and B are in different tax jurisdictions and is why the rules exist to prevent "dodges"

love2learn

uknick wrote: »

Get away with what? Company A not paying tax on the profit on the house?


What will B do when they come to sell it?


I thought the way large corporations use transfer pricing as a way to reduce profits before tax is to inflate the transfer price from a company based in a lower tax area to a company in a higher tax area.

In this specific scenario, Company A is a classed as a small enterprise as its turnover staff head count puts it in that category. With transfer pricing the asset should be transferred at the fair market price as if Company A and Company B were not related. But as the director of both companies is the same person and a link can be proven, then they are related companies so the transfer pricing value should have been at the fair market price.

So normally that would have been tax dodge if the company was "not" classed as an SME. But as there is exemption in the relevant legislation where small enterprises are not subject to the same rules, then in this scenario the tax dodge has been legal.

Took me while to get my head round it, but I think I'm right after reading the link above.

uknick

Sorry, love2, but I'm still struggling to see where the dodge is if the companies were not related. You're talking about transferring an asset below market value; what type of tax are you suggesting could be minimised, CGT, CT or another type and by which company (A or ?

love2learn

uknick wrote: »

Sorry, love2, but I'm still struggling to see where the dodge is if the companies were not related. You're talking about transferring an asset below market value; what type of tax are you suggesting could be minimised, CGT, CT or another type and by which company (A or ?

I'm not sure what tax might be getting dodged or if any at all.

Both companies are controlled by the same person, so I thought that would mean they are related companies?

It looks like the properties have been transferred with no actual money changing hands. Then the director has obtain loans secured on 3 of the properties to then use to buy more properties generating rent on properties valued at a higher price than the transfer price of the original properties transferred from Company A to Company B.

He has rented out the properties transferred from Company A to Company B for the fair market price of £400,000 properties too. So he's able to pay the payments on the £800,000 using rent at fair market value.

And then go on to use the £800,000 borrowed to buy other properties elsewhere, also paying fair market price for the rents on the property bought with the £800,000

It just seems wrong that this can be done, he can benefit from the fair market rental on properties he's transferred for less than the fair market value without any money changing hands between two companies controlled by the same director.

I have my reasons for doing this digging, I'm not out to get anyone for tax evasion... I just want to have ammo to use should this particularly person screw me over financially. I've seen enough to suspect they will and I'm already committed so I'm finding out as much about them as possible just in case I need it.

I'm a reasonable person and will do everything legally first.

00ec25

so, NOT a hypothetical question AT ALL :money:

love2learn

00ec25 wrote: »

so, NOT a hypothetical question AT ALL :money:

Well it's hypothetical as I may never need to use anything I may have found out, and don't actually want to unless absolutely necessary.