Transferring properties to limited company

[cb4fwh]

Hi,

My parents have a portfolio of personally owned commercial properties with a value of approximately £2m. They return an income of around £185k per annum, and are higher-rate tax payers. They also have around £1.5m in cash (only received recently following a property sale). They are now aged 75, and want to pass these assets to my brother and I. They are both currently in good health, and their own house is currently worth circa £700k, and their current IHT liabilities are approaching £1.5m on gross assets of around approximately £4.25m assuming that we do nothing.

We went to see a financial advisor recently, who advised that everything was sold and the cash was invested in offshore investments which would be clear of their estate after 2 years. Having mulled on this for a couple of weeks, we have collectively decided that the preference will be to retain the commercial properties, and accept the associated IHT risk. Next steps are to sit down with both an accountant and solicitor who specialise in this space.

My background reading has led me to conclude that this business is effectively an investment company (their input on a day-by-day basis is minimal), so it is not eligible for reliefs such as Business Asset Disposal Relief, Business Relief or Incorporation Relief.

I wanted to go into this session with at least a rough understanding of our options. From my background reading, my parents could obviously gift which would have immediate CGT implications, as well as the fact that their MRNRB (Main Residence Nil-Rate Band) & NRB (Nil-Rate Band) would be lost for 7 years. They are also considering gifting the remainder of the £1.5m cash after CGT has been paid. Interest earned on these savings, income from the commercial properties & income from our own jobs would put both my brother and I in the additional rate category for PAYE.

My parents come from a working class background, and would like to leave a legacy to my brother & I, and ultimately our children (currently aged 4 & 7). The position of my brother and I is that we do not necessarily need this income currently. I currently work as an independent consultant, working through a limited company. Would the transfer of the commercial properties into a new limited company be a sensible approach here from an IHT standpoint (with my brother and I as directors), given that the income could remain within the limited company and be reinvested to further build the commercial property portfolio? Obviously, this would incur CGT & SDLT which we are happy to pay. What I can't seem to find any information on is the IHT implication for my parents of transferring assets into a limited company where my brother & I would be the directors. Is this even possible? What would the implications be on my parents from an IHT standpoint? The current assumption is that my parents will not be paid an income from the limited company moving forwards, as their day to day outgoings are covered by personal and state pensions.

Any help in understanding the IHT implications when transferring into a limited company would be appreciated!

[pawncob]

With that value of assets it's essential you take professional advice, and don't rely on any information you get from a public forum.

[AGoodman]

You've kind of drifted there from IHT planning to incorporating investment properties, which is usually done for income tax reasons, is unlikely to have any effect for IHT, but could incur lots of CGT/SDLT.

As pawncob says, you need professional advice.