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Where Taxpayers and Advisers Meet

taking a property in lieu of debt

dazzle
Posts: 1
Joined: Mon Aug 13, 2018 4:42 pm

taking a property in lieu of debt

Postby dazzle » Mon Aug 13, 2018 4:48 pm

Hello - we've helped a family members' building company to start up with some initial investment of £150k and then more latterly helped again with £130k. We now need to obtain the funding back and the only offer likely to be on the table is to have one of the houses, current market value £350k (although not yet sold). The original commitment was interest being paid on the £280k stake, however, this is not currently possible and therefore, the offer is to have the house. If we took it as a debt write-off at £280k, what would be our tax burden?

sandy2000
Posts: 38
Joined: Wed Aug 06, 2008 3:33 pm

Re: taking a property in lieu of debt

Postby sandy2000 » Wed Aug 14, 2019 11:38 pm

Possible SDLT assessed at full market value - the transferor being a family member.

sandy2000
Posts: 38
Joined: Wed Aug 06, 2008 3:33 pm

Re: taking a property in lieu of debt

Postby sandy2000 » Wed Aug 14, 2019 11:40 pm

additional possible CGT burden on the current owner.

sandy2000
Posts: 38
Joined: Wed Aug 06, 2008 3:33 pm

Re: taking a property in lieu of debt

Postby sandy2000 » Wed Aug 14, 2019 11:46 pm

There may be other options..without exploiting the relative in a difficult situation ... eg placing a restriction RX1 to the tune of 280k, and or transferring a beneficial interest in 80% (= 280 / 350) of the property without transferring the legal title.. possibly zero SDLT for the new beneficiary and less CGT for the relative.

bd6759
Posts: 3094
Joined: Sat Feb 01, 2014 3:26 pm

Re: taking a property in lieu of debt

Postby bd6759 » Fri Aug 16, 2019 12:16 am

Possible SDLT assessed at full market value - the transferor being a family member.
Transfer to family member does not affect SDLT, which is charged on consideration.
additional possible CGT burden on the current owner.
It's a building company, so there wont be any CGT. However, it is not clear how a property owned by the company will be used to settle the individuals debt. The tax implications will depend on how that is achieved.
There may be other options..without exploiting the relative in a difficult situation ... eg placing a restriction RX1 to the tune of 280k, and or transferring a beneficial interest in 80% (= 280 / 350) of the property without transferring the legal title.. possibly zero SDLT for the new beneficiary and less CGT for the relative..
That doesn't give hem their money back, which is what they are trying to achieve.


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