Definition of UK trading company

by **Tax-Ace** on Mon Jul 04, 2011 10:17 pm

Would it be possible for a UK Ltd company owning 1 property in Spain to be considered as a trading company?

What conditions would have to be met?

by **section 44** on Tue Jul 05, 2011 10:16 am

Yes it would be possible. A trading company is a company that carries on a trade.

by **Incredulum** on Tue Jul 05, 2011 11:11 am

Owning a property that is rented out is not a trade.

However a UK company owning a Spanish property will be subject to UK corporation tax on rental income.

Tell us a bit more: what does the company do with its property, and why do you ask?

by **mullet** on Tue Jul 05, 2011 11:43 am

And does the company do anything in addition to what it does with or through the Spanish property?

by **Tax-Ace** on Tue Jul 05, 2011 3:15 pm

The company would be formed to acquire a Spanish property.

The company would not trade in the true sense of the word or rent the property.

The Spanish property would be used exclusively by the company owner.

I believe a trading company is exempt from UK IHT and hence the question as to what exactly is the definition of a trading company owning property overseas.

All comments greatly appreciated.

by **section 44** on Tue Jul 05, 2011 3:42 pm

Tax-Ace wrote:The company would not trade in the true sense of the word

Does this mean that the company would not trade or does this mean that some people may consider that the company would trade (but it is arguable)?

by **Tax-Ace** on Tue Jul 05, 2011 4:03 pm

That's also my question.

The company will not trade as such in that it will not earn any revenue. It will incur expenses in maintaining the asset (the property in Spain).

But in such a scenario could the company claim it was a trading company as per HMRC?

by **Incredulum** on Tue Jul 05, 2011 4:06 pm

You are buying a Spanish holiday home and using a UK company to do this?

No, it does not qualify to be exempt from IHT.

by **section 44** on Wed Jul 06, 2011 4:44 pm

Tax-Ace wrote:it will not earn any revenue

Is that correct? You say it will incur expenses, how will it pay such expenses? Will it incur, but never pay, expenses and merely rack up debt? I'm no corporate lawyer but can you have such a company? That is, why would the directors (with fiduciary duties) merely incur expenses and nothing more?

by **ensigntaxation** on Wed Jul 27, 2011 1:46 pm

Hi Tax-Ace,

How's it going?

A company where:

(1) the only asset is a Spanish property, used by the shareholder
(2) does nothing else,

I would suggest isn't even a business, let alone a trade.

No chance of IHT business property relief or entrepreneur's relief.

That said, if you're looking to reduce IHT then there may be other ways to skin the cat. What's the value of the property?

Cheers
Andy