Transfer of unencumbered property from partnership to a Ltd Co?

by Readers Question

16:04 PM, 24th April 2017
About 2 years ago

Transfer of unencumbered property from partnership to a Ltd Co?

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Transfer of unencumbered property from partnership to a Ltd Co?

I have done a fair bit of research on what taxes would be liable on the transfer/gifting of an unmortgaged property owned in partnership (not spouse) to a Ltd Co where the director’s are the same as the partnership.

I understand, hopefully, that there is no SDLT to pay because there is no mortgage outstanding, and because transfers from a partnership do not attracted SDLT anyway.

CGT though is less easy to find an answer on –

1) Transfer the legal ownership for no consideration(Gift?). I can’t find anything to say the property needs to be valued at Market Value for CGT.

2) Transfer at an ‘agreed’ value which does not exceed the base cost of the property.

Should there be no CGT payable in the second circumstance, would it be possible/legal to transfer the title to a Ltd Co at the base cost (and plus the personal CGT anual relief?) and make an entry in the Ltd Co DLA?

Many thanks

Adam



Comments

Mark Alexander

16:25 PM, 24th April 2017
About 2 years ago

Hi Adam

How many properties in the partnership?

Would you be transferring the entire business?

When was the partnership established?

What was the base price of the property?

What is the market value now?

Was the property held by the partnership since the day it was acquired?

Please describe the property. If it is one property split into 10 flats that is a very different scenario to it being one family home, as we know from the HMRC vs Ramsay case law.

How much time do you spend every week running the business?

There isn't enough information at this stage for me to answer your questions fully.

What I can tell you though is that CGT will be assessed on the open market value of the transfer. The reason for my questions above is that I want to try to establish whether incorporation relief under s162 TCGA will be applicable to mitigate the CGT.

Also see >>> https://www.property118.com/incorporation-relief-qualify/97777/
.

Adam Withford

16:37 PM, 24th April 2017
About 2 years ago

Hi Mark,

No S162 relief is not possbile, there are too few properties to qualify in this partnership.

Yes, it was purchased as a partnership in 2010 (simple partnership, not LLP etc). Quite easy to prove partnership, jont account etc.

Base price ~£74k, Value with new lease ~£200k. Currently has 68 unexpired years, but we are also in the process of freehold enfranchisement.

Would we need a professional valuation as proof of open market value?

Mark Alexander

16:42 PM, 24th April 2017
About 2 years ago

Reply to the comment left by "Adam Withford" at "24/04/2017 - 16:37":

Not strictly speaking but it is advisable to have a professional valuation just in case HMRC ever decide to challenge the consideration.

What is the value without the new lease?

My thinking is that it might be better to transfer as it is now, loan the money to the company to pay for the leasehold enfranchisement and gain any value uplift in the company.

You can then draw back the Directors loan without further income tax too.

Base cost for company will then be transfer value plus enfranchisement cost when you sell, plus indexation allowance of course.
.

Adam Withford

16:52 PM, 24th April 2017
About 2 years ago

The new lease is about £15k, so I'm guessing market value might be something like £180k, though I'm sure we could argue less (studio flat so not so easily mortgageable etc) 😉

Yes, I've thought about doing all before the enfranchisement for your reasons above.

What about transfering percentage shares of the title over a few years to make use of CGT allowances?

Mark Alexander

17:06 PM, 24th April 2017
About 2 years ago

Reply to the comment left by "Adam Withford" at "24/04/2017 - 16:52":

You're looking at £100k of gain there so it would be a case of doing it over at least 5 years. Also bear in mind the property might continue to increase in value over that period.

SDLT exemption under s15 FA2003 would not apply on that basis but you could keep each transfer below £40k to deal with that.
.

Adam Withford

18:01 PM, 24th April 2017
About 2 years ago

Thanks Mark,

If we don't extend the lease, I might expect the value to either stay put or even decrease given it's less than 70yr term.

We can then extend the lease as we wish after the freehold is aquired, all costs considered.

See you at Baker Street!


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