Selling commercial property for less than on the books...

[Ed.Neumann]

I was talking to a mate last night about his commercial property, he was saying the new interest rates are going to make it silly money.


Now, he has owned this property for 20 years, been useful to borrow against over the years. The bank valued it at £350k a few years back, which was a high valuation, but worked in his favour.

The reality is a couple of agents have said it is more like £280k in todays market, maybe even as low as £250k.


He owes around £250k against it, so around £100k of asset value on the books.


I said just buy it and become a landlord, I did this myself not long ago. Get rid of the bank.



If he buys it for £280k, or lets say £250k and just clears the mortgage and £350k of asset comes off his balance sheet, does this show as a £100k loss or how does it show on his year end?

Thanks.

[AyBee]

He already owns it, how does he buy it from himself?

[TownIdiot]

AyBee said:

He already owns it, how does he buy it from himself?

Reading between the lines it will be owned in a ltd company

[Ed.Neumann]

Sorry, the company owns the property, albeit with a mortgage.

He has the cash to buy it outright, but would rather put it in his own name rather than lend the limited company the £250k to buy it.

[AyBee]

In which case, yes, loss through the P&L. I assume the gain also went through the P&L when he had it re-valued?

[Ed.Neumann]

Thanks.

[Mr Pointy]

Ed.Neumann said:

Sorry, the company owns the property, albeit with a mortgage.

He has the cash to buy it outright, but would rather put it in his own name rather than lend the limited company the £250k to buy it.

Presumably his pension fund is going to buy it for him? You can hold commercial property in a SIPP style pension.

[wattsm666]

Going to pay stamp duty to get out of the company, potentially capital gains tax depending on original cost against value now.

Might be easier just to lend the company the money (you can charge interest on it) and then repay the mortgage.

[Jeremy-75qq8]

Stamp on a 250k commercial property is peanuts.

Companies don't pay capital gains tax they pay corporation tax

[Ed.Neumann]

I will pass all that on to him. Thanks.

[Eric Mc]

AyBee said:

In which case, yes, loss through the P&L. I assume the gain also went through the P&L when he had it re-valued?

When a significant asset (usually a building or land) is revalued, it will have an effect on the accumulated reserves of the company rather than showing as some sort of odd income/loss amount in the profit and loss account. The accounting entry for an increase in value is -

Debit - Fixed Asset with increase in value
Credit - Revaluation Reserve in balance sheet

For a decrease in value the accounting is the opposite -

Debit - Revaluation Reserve in balance sheet
Credit - Fixed Asset with decrease in value


No financial transaction has actually taken place so there is no real income or loss to the business and therefore no real profit or loss arising and, of course, usually no taxation effect arising either.