Relief in transferring property to a company

[Tmaker]

What forms of relief are there on CGT when a person transfers a fully owned rental property into a newly created "empty" company. The company is owned by, either

(a) the transferor.

or,

(b) the transferor's family (including children) equally.

I have read in a book that CGT relief is either "Gifts of Business Assets" or "Incorporation Relief." But what happened to the usual PLR & Taper Relief?

Thanks for any help.

[TaxationPete]

Many property owners look at forming a company to hold residential rental property and very few do it as it is not cost efficient, particularly if you actually want to talf the profit out of the company on a regular basis. To answer you question. Gifts of business assets or incorporation relief does not apply.
Any transfer of your property will be regarded as a disposal so CGT will apply but as a private owner you will have your CG Allowance to offset against the gain. Taper relief on such a transaction was dropped a few years ago. PLR only applies to a property that you have actually lived in as your main residence. Regards Peter

[Tmaker]

Thanks for the helpful response,

I was reading a slightly out-of-date book then! You're right, PLR is dependent on having PPR relief. I read through Incorporation Relief (in a more updated book). I presume you mean that Incorporation Relief does not apply primarily because my source of income from property is not classed as a business. Don't know if that can be debatable somehow. I wouldn't qualify for ER either, so it does seem like a lot of CGT even with the allowance.

The property company is really for passing several properties to several children so that they have an equal share with only one of them managing it - only one of them keen enough to do so. It would mainly be for long-term growth, ease of changing share, and simpler future inheritance with very little profit extracted.

Given what I now know, I've become more resigned to a whole family Joint Ownership approach, followed by inheritance to pass much of the CG on and not pay SDLT. If there's a new property on the horizon, maybe a company experiment.

[TaxationPete]

You may wish to consider the properties going into a Trust. You need face to face professional advice on this will all the facts and plans. Regards Peter

[Phlash]

If a company structure is the most appropriate structure, then you can drip feed in the property.

i.e. transfer enough over in order to sweep up any remaining CGT allowance each year. Depending on the gain in the property this could take a couple of transactions to a double digit number of transactions/years.

[Tmaker]

Thank you both.

Phlash, would not the HMRC recognise that as a series of connected/linked disposals and count it as one?

[Telometer]

Yes and no. Yes in so far as you would have to look at the transactions carefully from a commercial point of view to ensure that you were selling the correct amount each year so as to mop up available allowance. No in so far as they do not require you to lump all the transactions together into one.

They would link them all for SDLT purposes if you were making a sale, but you're not.

[Tmaker]

Telometer,

If I read you right - reading between lines is not my forte - you are saying I could make it look as though I am not mopping up allowance and get away with it; but if I were being honest the intent is just that. So unless intent does not matter, I'm not convinced I'd be in the "right" to use Phlash's suggestion.

I get mixed answers about whether it is a sale. I've heard one has to "sell" (is the word used) one's own property to the own company. Further complicated by the fact that the company would be part owned by family. Either way I was thinking that if SDLT follows the legal title (and the legal title is worthless) then I can just keep the legal title with my name and move 100% of the beneficial interest to the company. The title would pass on death (not sure about this bit).

Thanks for your answer.

[Telometer]

1. I am saying it's perfectly OK. What I'm saying about the "correct" proportion is that valuing the rights to 10% of a property is not the same as 10% of the value of the entire property. i.e. you wouldn't pay the same rate for a minority stake in the property as you would for the full amount. So there would be a real skill in identifying the correct proportion of property to sell to create a gain of 10k.

2. Sorry, I'd been diverted down the route of thinking about a gift to a trust, not a sale to a company. I don't think your idea will work, as generally legal/beneficial split schemes stopped working some years ago.

[Tmaker]

OK, thanks. I think I got the general gist of that.

[Phlash]

Telometer may be eluding to the 'market value' for tax purposes if he was eluding to the not so well known art of fiscal valuations.

He might of been referring to checking that you sell the correct pro-rata slice of the house in order to end up mopping up all of the CGT allowance and not just part of it.

If the former, then he would be eluding to the dark art of giving a pro rata slice of the property a discount for only being a slice of the whole thing, therefore worth less and can transfer more before mopping up the CGT allowance.

I say 'dark art' as not many people are experienced in this and it is heavily based on case law.