Tax advantages/disadvantages in selling a property company vs selling the properties individually

Tax advantages/disadvantages in selling a property company vs selling the properties individually

20:12 PM, 1st January 2017, About 5 years ago 19

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When I first became a landlord I was advised of the tax advantages in holding buy to let properties in a Ltd company rather than individually. However, as I am now getting on in years (it comes to us all in the end) it may be time to sell up.

There are two directors and in order to remain in the lower tax band we only take small dividends each year resulting in the company having substantial reserves. The question is, are there any tax advantages in selling the company as a going concern rather than selling all the properties individually?

Thanks Tax advantages disadvantages in selling a property company vs selling the properties individually

Ray



Comments

by Mark Alexander

12:46 PM, 3rd January 2017, About 5 years ago

Reply to the comment left by "Nigel Reynolds" at "03/01/2017 - 12:01":

Hi Nigel

Please allow me make this easier for you.

Here's a link to the calculator prescribed by the Government >>> https://www.tax.service.gov.uk/calculate-your-capital-gains/non-resident/

The calculator gave me the answer £5,287.50.

To complete the form I also had to add the following:-

Date of purchase 6th August 1996

Date of sale 6th August 2016

Other taxable income £100,000

No PPR relief claimed

No capitalised improvements

£1,000 each for acquisition/sale costs.

Screen Shot of result ...

CGT for non-residents
.

by

13:14 PM, 3rd January 2017, About 5 years ago

Reply to the comment left by "Mark Alexander" at "03/01/2017 - 12:46":

So you have proven my comments to be correct. I am not quite sure why you were pushing the point other than to waste my time.

by Mark Alexander

13:32 PM, 3rd January 2017, About 5 years ago

Reply to the comment left by "Nigel Reynolds" at "03/01/2017 - 13:14":

Hi Nigel

I cannot see how you have arrived at that conclusion.

My original advice was correct. Non-residents pay CGT only capital gains made since 6th April 2015. Their companies pay corporation only corporation tax in the U.K.

If you wish to challenge my advice please be more specific.

I have no intention of wasting your time Nigel, nor my own. I'm sorry you feel otherwise.
.

by Chris Wheelwright

9:39 AM, 7th January 2017, About 5 years ago

Mark, Clearly Nigel doesn't recognise the difference between paying CGT on the gain since April 2015 and since acquisition - but I'm sure many of us do - thank you!

by Simon Lever

12:24 PM, 7th January 2017, About 5 years ago

Hi Ray

Let’s forget all the “nonsense” about emigrating to get a tax advantage and look at what is more practical for living in the UK. Having said that if the amount we are talking about is big enough emigration for tax purposes may still be something you will wish to consider.

A property company in the UK is not considered to be a trading company and therefore any capital gains made on a disposal of the shares will be taxed at 28% on the capital gain. An individual has an annual exemption of £11,100 per year (2016/17) and any gain that still falls within the basic rate band of income will be taxed at 18%.

First planning point: if you are married transfer half of the shares to your wife to get 2 sets of annual allowance.

If you sell the company as a going concern then there will be 0.5% stamp duty to be paid on the shares by the purchaser, not your problem but it still needs to be considered.

If you sell the properties in the company then any purchaser will end up paying stamp duty at much higher rates. This makes buying the company more attractive. You will then have a pot of cash in the company which needs to be extracted and on which you will pay CGT.

However if you sell the company you will also be selling the cash reserves already built up and you will then end up paying CGT on this cash. Not a good scenario. So you need to consider extracting all of the cash before any sale.

This is not as easy as it may seem as to take money out of a company you have to pay tax on the extraction.

One way that you could consider is to pay pension contributions by the company on your behalf. Planning point two: Pay as much pension contribution as you can as this will be allowable against any corporation tax that the company pays. As there are 2 directors pension contributions can be made for both of them. You will need to check with your accountant or financial advisor the maximum amount that can be paid in the tax year. Don’t forget that from 6 April a new annual pension payment allowance will renew so make contributions before and just after this date.

The sale of properties in the company will give rise to a tax liability on the gains. These are calculated the same way as personal capital gains but then an indexation allowance is given on the cost. Tax is paid on the gain at the corporation tax rate for the accounting year. Currently 20% but dropping to 19% on 1 April 2017.

The pension contributions will reduce the tax payable. If you do not make sufficient profits to cover the pension contributions then a loss for the year will be created and this can be carried back 1 year to offset against the previous year’s profits.

Planning point three: I am sure you already do so but pay dividends of at least £5,000 for each shareholder each tax year so that they take advantage of the 0% tax band for dividends.

The above is basic advice but you should always check out anything with your own accountant before doing anything. I do not take any responsibility for the above and any action you take is on your own account.

Looking forward once you have received your money you need to consider inheritance tax planning for your funds. You may wish to consider planning before you sell the shares. It is possible to set up a trust for the benefit of your children, if any, and to then transfer the shares to them to get around the IHT potential problem. This is specialist advice and you will have to pay to set this up.

Your first port of call is to discuss your plans with your accountant and see what they say. If you are not happy that they have the experience or capability to deal with the situation then you can take specialist advice from other accountants or tax advisors.

by Simon Lever

12:37 PM, 7th January 2017, About 5 years ago

Reply to the comment left by "Mark Alexander" at "03/01/2017 - 12:46":

Hi Mark
Dont forget that it is possible to pay tax on the gain since 5 April 2015 by having the proeprty valued at 5 April 2015 and then paying tax on that gain. If the majority of the gain was incurred before 5 April 2015 then this way you do not time apportion the gain. It produces better results in many cases.

If you are an overseas property owner then my advice is to have the property valued professionally at 5 April 2015, even now, so that you have a basis for future computations rather than arguing about the 5 April 2015 valuation in, say, 10 years time.

by Mark Alexander

18:04 PM, 7th January 2017, About 5 years ago

Reply to the comment left by "Simon Lever" at "07/01/2017 - 12:37":

Hi Simon

Yes I am aware of that method too.

There are few reasons I didn't use that method.

I have around £150,000 of capital losses to use up before I'm affected anyway. Secondly, the likely difference, due to length of ownership, doesn't really justify the cost of a professional valuation. My properties are mainly in Norwich where capital value increases since April 2015 have spectacularly out performed every other area of the UK. I also worry whether a valuation on a historic basis might also be challenged by HMRC and result in further professional fees.
.

by Mark Alexander

18:04 PM, 7th January 2017, About 5 years ago

Reply to the comment left by "Simon Lever" at "07/01/2017 - 12:37":

Hi Simon

Yes I am aware of that method too.

There are few reasons I didn't use that method.

I have around £150,000 of capital losses to use up before I'm affected anyway. Secondly, the likely difference, due to length of ownership, doesn't really justify the cost of a professional valuation. My properties are mainly in Norwich where capital value increases since April 2015 have spectacularly out performed every other area of the UK. I also worry whether a valuation on a historic basis might also be challenged by HMRC and result in further professional fees.
.

by Simon Lever

1:03 AM, 8th January 2017, About 5 years ago

Reply to the comment left by "Mark Alexander" at "07/01/2017 - 18:04":

Hi Mark
That's the one good thing about this having a choice - you can chose whichever method gives you the best result.


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