Property

Anders1

Can anyone help me with this property related query?

Is it possible to buy a property then immediately gift it into a company at current Market Value, ( creating little or no capital gain). Is this possible with no other tax implications and if so does it follow that a Directors Loan account can be setup for the value of the property and drawn down on tax free? Presumably the rent the property produces can be drawn this way


Any thoughts greatly appreciated

ioscorpio

try posting on
https://www.streetwisepublications.co.uk/forum
as there are plenty of property investors on there who will give you an imformed answer

Pinkleylandii

Hi

I do not know what sort of property you are talking about as such but have assumed that it is a commercial property that can be let to an individual, partnership or an unquoted trading company in business. Infact there are quite a few assumptions made by me!!

Anyway, by going down your suggested route, you are leaving yourself open to an enhanced tax exposure in the future. Firstly, if you are looking to sell the company in the future, the investment property held by the company could well scupper your entitlement to business asset taper relief on the sale of your shares as it could well breach the 20% non trading activity/asset base rule. Therefore you would get the lot less favourable non- business asset taper relief against any gain on your shares.

Secondly, if you do not sell the shares but the company instead sells the property at future date, the company will only get 'poxy' indexation allowance and no annual CGT exemption. The biggest problem is the potential double tax charge you are leaving yourself open to by going down this route, ie corporation tax of say at least 19% on the indexed gain but possibly a tax rate of 32.75%!! Furthermore, you then have to get the net proceeds out the company by say distribution which on a higher rate taxpayer is a further 25% income tax liability on the net distribution taken!!

If you kept the property in your name only, and let it out to say an unquoted trading company, sole trader or a partnership, you would get business asset taper relief on the gain which if held for 2 years would result with only a 10% tax charge for a higher rate taxpayer and a CGT annual exemption!!

You may of already thought about the above, but if not, hope it helps!!

Cheers

John