Sole trader to limited company - property transfer

[matlockscot]

Not sure if anyone has any experience of this but here goes;

We have gone from a sole trader (with one 'director / person') to a limited company with 4 directors (one of whom is the company founder). The business owns a number of small industrial units which are currently held in the name of the sole trader business. We want to transfer them to the new limited company as an asset. Is there any way of doing this without generating a 'sale' and thereby incurring all the associated costs (potentially including stamp duty)?

thoughts?

[Countdown]

You can transfer the assets at the carrying value (s266 transfer). This means that you sell them for what they are recorded at in your balance sheet (so there is no profit on disposal) and the LtdCo acquires them for the same price.

http://www.taxation.co.uk/taxation/Articles/2012/1...

[Eric Mc]

Why not have the company rent the properties from the individuals who own them? That would be one way of extracting money out of the company in a relatively tax and NI efficient manner.

[matlockscot]

Countdown said:

You can transfer the assets at the carrying value (s266 transfer). This means that you sell them for what they are recorded at in your balance sheet (so there is no profit on disposal) and the LtdCo acquires them for the same price.

http://www.taxation.co.uk/taxation/Articles/2012/1...

Presumably this would trigger a stamp duty payment on the sale price?

As for rental - this is what we are currently doing, however, we ultimately would like the asset on the balance sheet

[Eric Mc]

Why?

[matlockscot]

A few reasons, not least being potential creation of negative equity on the balance sheet (in the first year at least) which isn't great for credit rating and the fact that rental paid creates taxable income elsewhere (which could be agued will be offset by reduced profits in the ltd co, but first year will show a loss anyway).

[hajaba123]

Eric Mc said:

Why?

This x100

From your OP it also seems to me that you don't really understand the concepts and differences between the various legal entities. Get your accountant to explain it all to you in a way that you clearly understand. Once this is clear you can start to answer Erics question and then work towards the 'how' if appropriate.

[Eric Mc]

matlockscot said:

A few reasons, not least being potential creation of negative equity on the balance sheet (in the first year at least) which isn't great for credit rating and the fact that rental paid creates taxable income elsewhere (which could be agued will be offset by reduced profits in the ltd co, but first year will show a loss anyway).

Remember the debit and credit entry required to account for the transfer of the property to the company.

As the property is owned by the directors and the company obviously cannot afford to pay for it up front, the Debit would be to the Fixed Assets and the Credit would be to the Directors Loan Account(s).

This would therefore have a neutral effect on the balance sheet and not make a jot of difference to the solvency situation of the company.

Think also of the Capital Gains Tax situation if and when the property is sold.

[T1pper]

Hi,
I would keep the properties out of the ltd company, if the company gets into difficulty or the is held liable for something the properties could be taken if its within the limited company.

If they are held privately and rented you should have cover against them being taken, maybe its just a bit of insurance.

[Alpinestars]

Countdown said:

You can transfer the assets at the carrying value (s266 transfer). This means that you sell them for what they are recorded at in your balance sheet (so there is no profit on disposal) and the LtdCo acquires them for the same price.

http://www.taxation.co.uk/taxation/Articles/2012/1...

This is only relevant for assets on which CAs are claimed. Selling the property to the company is prima facie, taxable. S165 relief could be claimed to reduce the gain to nil, but it also reduces the base cost of the property in the company. SDLT would be payable by the company. I can't think of a way of avoiding that.

The only real advantages of holding the property in the company that I can think of are, and bear in mind it's a Friday night!;

that a future sale of the shares of the company holding the property might qualify for Enrepreneurs' Relief (assuming it is carrying on a trade and it passes the other criteria for ER), and

The sale of the property to the company would result in tax free proceeds for the seller.