Transfer of properties between limited companies

by **sarahg73** on Thu Aug 12, 2010 3:01 pm

Company A trades and owns 3 properties, one of which is related to the trade

The director wants to set up COmpany B and transfer 2 of the properties in to this company, so that if at a later date he wants to sell the trade they are seperate

He wants to transfer at about a third of the current MV

What are the pitfalls we need to look for? Should the properties be transferred at MV?

Any tips gratefully received

by **Incredulum** on Thu Aug 12, 2010 3:29 pm

This seemingly simple action is really quite complicated. I recommend you go to talk to a good accountant. A lot of the solution depends on whether you might sell either the properties or the trade within six years of now. And indeed, on whether any of the properties is standing at a gain. And whether anybody would be likely to buy the properties within the companies in order to save on SDLT. Some brief thoughts - though I could probably write pages on this:

I presume that he will have the two companies in the same group - i.e. Company A owns Company B.

There is no tax reason why the property should not be transferred at any value you like. On the other hand, why bother doing it at anything other than market value? You might get into company law issues, with illegal distributions etc. Will it be done for shares, or for debt?

However, if the properties are transferred to company B, and within six years of the transfer date company A disposes of company B then a degrouping charge arises - a chargeable gain will arise in company B.

You might be better transferring the trade to company B from company A if it is more likely that the trade be sold than then properties - though again there would be a degrouping charge if the company with the trade is sold, in respect of all chargeable assets.

Remember you will now have two associated companies for the small companies rate.

by **sarahg73** on Thu Aug 12, 2010 3:58 pm

Thank you, so is a group the best way to go?

What happens if the properties are transferred at MV and there is a large debt on the balance sheet on COmpany A when it comes to sell the trade?

What happens if the properties are transferred at less than MV?

Will stamp duty be due on transfer of properties?

Thanks again

by **Incredulum** on Thu Aug 12, 2010 4:31 pm

You will get stamp duty group relief (provided it is a group of companies) - provided you are not in the process of selling the properties (in a corporate wrapper).

Is company A going to sell the trade, or to be sold? (Obviously the final result is giong to be a factor of the desires of the purchaser.) But if it is the trade that is being sold without corporate wrapper, there's not need to bother with any of this.

What happens if the properties are transferred at MV and there is a large debt on the balance sheet on COmpany A when it comes to sell the trade?

It will have to be settled.

What happens if the properties are transferred at less than MV?

You may end up with the directors breaking the law. Depends on how and what - and I'm not going to comment on that, sorry.

Plan 2, to give you maximum flexibility. (N.B. effect on small companies rate with all the associated companies)

Incorporate E, F and G, all as subsidiaries of A. Transfer trade and properties to each of E, F and G. In the event of selling one of these companies within six years, interpose Newco between A and shareholders. Transfer E and F to Newco, then sell A and G together. No degrouping charge arises as you are selling A and G together.

Plan 3, which does most of what plan 2 does. Transfer properties to B from A. If you wish to sell the properties, interpose Newco between A and shareholders, hive up trade into newco, dispose of A and B with properties. If you wish to dispose of trade, move B up, and dispose of A.

by **section 44** on Tue Aug 17, 2010 4:28 pm

Remember corporate benefits (not tax), can the directors of company A decide to sell its property at an undervalue without being in breach of their fiduciary duty? Generally market value is preferable.

by **Generix** on Thu Aug 19, 2010 1:03 pm

section 44 wrote:Remember corporate benefits (not tax), can the directors of company A decide to sell its property at an undervalue without being in breach of their fiduciary duty? Generally market value is preferable.

Don't forget the usual VAT consequences - are the buildings opted to tax? Are they tenanted? Is the supply a TOGC? etc.

VAT on sale price will increase value for Stamp Duty