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Where Taxpayers and Advisers Meet

MVL and Buy to Let

PeterBalham
Posts:9
Joined:Mon Sep 14, 2015 2:28 pm
MVL and Buy to Let

Postby PeterBalham » Wed Jul 14, 2021 2:20 pm

I own a property any which owns 4 buy to let properties.

I own directy 10 properties.

'-------------------------------------

I would wish to sell three of the 4 companies within the company which would leave about 1300k in the company
then enter an MVL where I pay out the cash within the company and the remaining propertt as an exprecia dividend.
The company would have a capital gains tax liability of about £200k.

So I would receive about £1100k in cash and one properties with a value certified by a chartered Surveyor of about 450k in total £1,550k
I would continue toe rent the 10 propertie I won directly and the 1 trasferred out and pay income tax on them,


'''''''''''''''''''

Q1 Would this £1,550k be treated as a capital distribution taxed at 20%? that would be hope
or
Q2 If not and it was to be treated as a dividend could I sell all 4 of the properties buy a number of flats to let as holiday rentals , then up sell two years later
at which point I would qualify for business asset retlief

bd6759
Posts:3558
Joined:Sat Feb 01, 2014 3:26 pm

Re: MVL and Buy to Let

Postby bd6759 » Wed Jul 14, 2021 4:23 pm

You own a property company? That company owns 4 properties?

The company will sell 3 properties, which will result in the company having cash of £1100K after paying tax of £200K.

You want to liquidate the company to extract the cash and the remaining property, as an in-specie dividend? (I think you mean in-specie distribution - a dividend will be taxed as a dividend)

You want to know if the distribution of cash and property will be treated as capital distribution.

The answer is probably, but you must appoint an insolvency practitioner.

You'll need to to wary of Targeted Anti-Avoidance Rules (such as moneyboxing) which may treat the distribution as income.

PeterBalham
Posts:9
Joined:Mon Sep 14, 2015 2:28 pm

Re: MVL and Buy to Let

Postby PeterBalham » Wed Jul 14, 2021 4:32 pm

My accountant says he thinks it will be taxed at 20% but he is not sure but if I change the company to holiday homes for example I would definatly get business asset relief.

bd6759
Posts:3558
Joined:Sat Feb 01, 2014 3:26 pm

Re: MVL and Buy to Let

Postby bd6759 » Wed Jul 14, 2021 9:41 pm

Only if it is a capital distribution.

PeterBalham
Posts:9
Joined:Mon Sep 14, 2015 2:28 pm

Re: MVL and Buy to Let

Postby PeterBalham » Wed Jul 14, 2021 11:06 pm

I talked to an insolvency practioner and he said if I enter into a MVL it would be a capital distrubiution ay 20%.

I mentioned I had read the TAAR provisions and was worried I would be caught by them and the distirbution would be treated as a dividend and taxed at 38.1%
He then changed his mind and he then said I need to get advice from an accountant.

I have talked to three so far

One of the accountants had no idea , one said he was "bullish" it would be tased at 20% , the other is still researchng

All of them agree if I change the trade of the company to holiday lets I would get business asset relief and pay 10% on the first £1m anf then 20%.

I posted here to see if anyone knew a definitive answer as to whether entering into a MVL and closing the company via a distribution what tax rate I would pay
so far everyone says it is initially a capital distribution but there is disagrement as to whether the revenue may decided under the TAAR rules I would need to pat rax at 38.1%

The sure way though they all agree is to change the trade of the company , maybe the accountant I last aksed will give me a definitive answer this week

PeterBalham
Posts:9
Joined:Mon Sep 14, 2015 2:28 pm

Re: MVL and Buy to Let

Postby PeterBalham » Wed Jul 14, 2021 11:07 pm

I talked to an insolvency practioner and he said if I enter into a MVL it would be a capital distrubiution ay 20%.

I mentioned I had read the TAAR provisions and was worried I would be caught by them and the distirbution would be treated as a dividend and taxed at 38.1%
He then changed his mind and he then said I need to get advice from an accountant.

I have talked to three so far

One of the accountants had no idea , one said he was "bullish" it would be tased at 20% , the other is still researchng

All of them agree if I change the trade of the company to holiday lets I would get business asset relief and pay 10% on the first £1m anf then 20%.

I posted here to see if anyone knew a definitive answer as to whether entering into a MVL and closing the company via a distribution what tax rate I would pay
so far everyone says it is initially a capital distribution but there is disagrement as to whether the revenue may decided under the TAAR rules I would need to pat rax at 38.1%

The sure way though they all agree is to change the trade of the company , maybe the accountant I last aksed will give me a definitive answer this week

bd6759
Posts:3558
Joined:Sat Feb 01, 2014 3:26 pm

Re: MVL and Buy to Let

Postby bd6759 » Thu Jul 15, 2021 8:25 am

A capital distribution is charged to capital gains tax. BAR is a CGT relief. You will only get BAR if it a capital distribution.

The availability of BAR does not turn an income distribution into a capital distribution.

Whether it is capital or income is very fact specific. You will not get an answer to your precise circumstances on a forum. You need to engage a person with the right experience.

PeterBalham
Posts:9
Joined:Mon Sep 14, 2015 2:28 pm

Re: MVL and Buy to Let

Postby PeterBalham » Thu Jul 15, 2021 12:15 pm

I assume take my point about if I change the trade though?

Then I get BAR, all three accountants agree that I would get BAR that way

bd6759
Posts:3558
Joined:Sat Feb 01, 2014 3:26 pm

Re: MVL and Buy to Let

Postby bd6759 » Thu Jul 15, 2021 10:14 pm

I refer you to my previous answer.

The availability, or not, of a specific relief does not affect the nature of the distribution.

If it is a revenue distribution BAR cannot apply because BAR does not apply to revenue distributions. It is a CGT relief.

If it is a capital distribution BAR might apply, if all the conditions are met. It is a brave accountant who assures you it will apply some time in the future even before you have actually commenced a qualifying activity.

PeterBalham
Posts:9
Joined:Mon Sep 14, 2015 2:28 pm

Re: MVL and Buy to Let

Postby PeterBalham » Fri Jul 16, 2021 12:56 pm

I merley asked them

If sell the properties in the company then ask a cousin to assiest me in buying and managing a small portfolio of properties used for holiday letting
then I engage a company that can enter into an MVL what is my tax situation under current legislation.
https://www.taxationweb.co.uk/advertise-on-taxationweb.html

All three said I would get business asset relief.

Some time ago when entrepreneurs relief existed a local accountant with a substantial practice in south London contacted a number of landlord who owned property companies and informed
us if we were to change our trade to property development we would be able to get entreprenuers relief.

He did this for a number of people, the logic was there were rumours that it would be subatanitally cut . some of the accountants he met were sitting on substantial gains and he suggested they "book" at least a portion of them as the then 10 million limit may well be reduced

He was really charming and succesful in his job , I think the two go together.

I also raised this question on a site where people pay a fee to be a member and the admin gove aprize for the best answer

If I get no luck there or with my current accountand who is looking a this for me I will look him up.

He was definantly not cheap but a pleasure to talk to he was also aware that merely stating my options was not weeking his position as I would clearly want his clients
to sign this off for them.


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