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Where Taxpayers and Advisers Meet

Transfer of an asset to the director for NIL consideration-Tax implication?

CALTD
Posts: 92
Joined: Wed Aug 06, 2008 3:23 pm

Transfer of an asset to the director for NIL consideration-Tax implication?

Postby CALTD » Tue Sep 22, 2015 11:19 am

Hello

I have a situation where a Limited Company which is owned solely by 1 shareholder who is also sole director, has an asset which the director is looking at transferring to himself. The asset relates to an Overage agreement and relates to some land which may be sold in the future. If and when the land sells for development, then currently it is the company which will receive the amount of the overage.

Question-As the value is unknown and uncertain at this point then what are the company tax implications of making a transfer now at a NIL value? The problem is that we don't know for definite what this amount will be but concerned that as its a connected party transfer there is a chargeable gain arising on the company. Normally a transfer of an asset to it's director would be at MV so how would this transaction be dealt with for tax for the company and individual?

(The director wishes to transfer the asset for IHT planning purposes)

Thank you for any guidance given

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: Transfer of an asset to the director for NIL consideration-Tax implication?

Postby King_Maker » Tue Sep 22, 2015 2:11 pm

Or it might be considered a distribution?

LozaACCS
Posts: 1504
Joined: Wed Aug 06, 2008 3:55 pm

Re: Transfer of an asset to the director for NIL consideration-Tax implication?

Postby LozaACCS » Tue Sep 22, 2015 9:24 pm

I think it would be regarded as a distribution, the question then arises as to whether it is a legal distribution.
In my opinion the overage agreement would be within the Marren V Ingles principle so the valuation is its potential value.
To be within the law it may be advisable to revalue the asset in the company,s books to the market value, this would allow the distribution to be treated as made from distributable profits, my understanding is that a statutory relaxation allows the upward revaluation to be treated as a realised profit.

CALTD
Posts: 92
Joined: Wed Aug 06, 2008 3:23 pm

Re: Transfer of an asset to the director for NIL consideration-Tax implication?

Postby CALTD » Thu Sep 24, 2015 12:21 pm

Thank you for your comments.

Just to clarify then, if it was treated as a distribution would this just mean then that the director would have to pay the dividend rate of tax on the distribution just like normal dividends? I assume then that when the Overage payment is eventually received in the future that there wouldn't be any additional tax to pay?

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: Transfer of an asset to the director for NIL consideration-Tax implication?

Postby section 44 » Thu Sep 24, 2015 2:58 pm

if it was treated as a distribution would this just mean then that the director would have to pay the dividend rate of tax on the distribution just like normal dividends?
yes
I assume then that when the Overage payment is eventually received in the future that there wouldn't be any additional tax to pay?
You assume wrong. When the overage payment is received, there would be a disposal by the director of the right to receive the overage and tax may be due on any profit.

CALTD
Posts: 92
Joined: Wed Aug 06, 2008 3:23 pm

Re: Transfer of an asset to the director for NIL consideration-Tax implication?

Postby CALTD » Thu Sep 24, 2015 3:15 pm

.. If the eventual overage payment received was exactly the same as the figure used in the 'distribution', then there would be no additional profit to tax? is that correct?
Thank you very much for your help

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: Transfer of an asset to the director for NIL consideration-Tax implication?

Postby section 44 » Thu Sep 24, 2015 4:14 pm

correct (presumably with the overage paying less than anticipated)

bd6759
Posts: 3306
Joined: Sat Feb 01, 2014 3:26 pm

Re: Transfer of an asset to the director for NIL consideration-Tax implication?

Postby bd6759 » Thu Sep 24, 2015 10:55 pm

The question is whether he is getting the asset because he is a director or because he is a shareholder. That will determine the tax treatment.


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