Transfer of Property to a Limited Company

Betty11

Hi
I would be very grateful for some advice on CAT and Stamp Duty in relation to a property transfer.

My boyfriend and I are setting up a new limited company. We need to build a business premises. The site is being given to us my his parents. And must be transferred to the company (for the business loan).

How should this be done in order to minimise CAT and stamp duty? Would it be 2 transfers 1: from his parents to him 2: from him to the company?

Thank you in advance!

tanit

Stupid question but why don't your boyfriends parents become part of the venture and make a loan/sale of the site to the company in exchange of shares? Later on if they are shareholders and after a few years the company can buy back the shares when they are retiring and avail of reliefs if done properly (they would need to fulfil a series of rules to avail of reliefs but tax liability would be lower for what it is a start up).

I'm saying this because the way you put things I'm pretty sure they are going to suffer CGT themselves (being a connected persons transactions MV applies), CAT on the part of your boyfriend (he might not get any liability but will be more than likely using his CAT lifetime band) and from your boyfriend to the company there would be CGT as well as CAT (in this case to the company) and the land would become part of the company assets. If things don't go well that land will be use in any liquidation process and you would have paid a significant amount of taxes for nothing. (Also I know I have not mentioned SD but there will be x2 SD on those transfers)

Can anyone correct me if I am wrong?

But in any case the whole transaction is quite complicated and I strongly advise you to get proper tax advice with this because the tax bill could be quite high and also there are reliefs for people investing in startup/new companies that might help with the transaction as well as there might be other ways of doing the transfer that will make everything more tax efficient.

Seriously get a tax advisor.

Heisenburg81

Betty11 wrote: »

Hi
I would be very grateful for some advice on CAT and Stamp Duty in relation to a property transfer.

My boyfriend and I are setting up a new limited company. We need to build a business premises. The site is being given to us my his parents. And must be transferred to the company (for the business loan).

How should this be done in order to minimise CAT and stamp duty? Would it be 2 transfers 1: from his parents to him 2: from him to the company?

Thank you in advance!

If you pursued the course of action you outlined;

Is the site adjacent to his parents house? Could be PPR relief.
If not will be CGT for parents on any uplift in value since they acquired it.

Sons CAT group A threshold should cover his liability assuming no prior gifts.
The site should be gifted to your husband alone.
He can then transfer to you and inter spousal exemption from cgt, cat and stamp would apply.

Should be no CGT on transfer to company as your base cost will be the current market value so any gain should be negligible if done within a short timeframe.

The company will be receiving a gift and it is looked through to see who is receiving the gift.
As you will both be the shareholders no gift tax arises as you cant gift to yourself.

Stamp duty is a separate issue and i dont see any relief for the proposed structure.
Stamp duty of 6% for both the transfer to husband and stamp duty payable by the company of 6%.

As Tanit said you need professional advice as there may be reliefs out there so you should get advice on the best structure.

dogsears

tanit wrote: »

Stupid question but why don't your boyfriends parents become part of the venture and make a loan/sale of the site to the company in exchange of shares? Later on if they are shareholders and after a few years the company can buy back the shares when they are retiring and avail of reliefs if done properly (they would need to fulfil a series of rules to avail of reliefs but tax liability would be lower for what it is a start up).

I'm saying this because the way you put things I'm pretty sure they are going to suffer CGT themselves (being a connected persons transactions MV applies), CAT on the part of your boyfriend (he might not get any liability but will be more than likely using his CAT lifetime band) and from your boyfriend to the company there would be CGT as well as CAT (in this case to the company) and the land would become part of the company assets. If things don't go well that land will be use in any liquidation process and you would have paid a significant amount of taxes for nothing. (Also I know I have not mentioned SD but there will be x2 SD on those transfers)

Can anyone correct me if I am wrong?

But in any case the whole transaction is quite complicated and I strongly advise you to get proper tax advice with this because the tax bill could be quite high and also there are reliefs for people investing in startup/new companies that might help with the transaction as well as there might be other ways of doing the transfer that will make everything more tax efficient.

Seriously get a tax advisor.

Most of what you said is wrong.

What do you think happens when the parents transfer the site to the company? (Note that a transfer appears to be required by the business loan lender). The fact that they get shares in return makes no difference to the tax outcome except that they would have no cash to pay it. The only possible relief would be PPR as stated but there is no information about that.

Why have 2 additional shareholders? What happens if there's a falling out?

Why do you think a transfer of the site by the son to the company, after receiving a transfer from the parents, would give rise to more CGT? And what does CAT "to the company" mean?

There's more but I'm not going into it.

The thing you said that is right is that the OP needs to get professional tax advice.

tanit

dogsears wrote: »

Most of what you said is wrong.

What do you think happens when the parents transfer the site to the company? (Note that a transfer appears to be required by the business loan lender). The fact that they get shares in return makes no difference to the tax outcome except that they would have no cash to pay it. The only possible relief would be PPR as stated but there is no information about that.

Why have 2 additional shareholders? What happens if there's a falling out?

Why do you think a transfer of the site by the son to the company, after receiving a transfer from the parents, would give rise to more CGT? And what does CAT "to the company" mean?

There's more but I'm not going into it.

The thing you said that is right is that the OP needs to get professional tax advice.

My thinking about the issue was exchanging the land for shares. The value of the shares becomes the value of the land and there is CGT & SD but no CAT (no gift has happened). The consideration for the land would be the shares. That's also why I was asking for someone to correct me. It goes directly to the company with one charge of CGT & SD and no CAT.

The parents then become shareholders if, and this is were I was thinking they needed a tax advisor, they are active in the business and fulfil the requirements for Entrepreneur Relief they can sell the shares back to the company when they are retiring. Share buy back would apply if shareholders are retiring (or there is a falling out) CGT rules apply and if done properly they would be able to avail of 10% CGT rate (ER). Of course you would need proper planning for all the pieces to fall properly in place. Right now they are gifting the whole thing so they don't have an immediate need of money and they might want some when the time comes.

In any case the land becomes property of the company and could be used in liquidation if things go wrong.

The first CAT probably right now is covered by Group A threshold, the second CGT is more than likely to be nil if there is no delay in transferring the site to the company and I didn't think about tracing the shareholders and that coming back to them making the CAT nil but there are still two SD charges and a significant amount of returns to prepare and file so the compliance bill will be high. There is also the issue he would be using his Group A threshold and ideally you would try to avoid that. It would save him money in the future.

Of course this is were you enter "you need a tax advisor" territory; there could be dozens of better ways of structuring the whole thing.