investment or trading company?
Discussion
It's not relevant whether excess cash is generated by the property sale. Instead of showing property on the balance sheet, the company will have cash. If the company is currently a trading company, it becomes irrelevant whether the non trading asset is property or cash.
If the company is currently non trading, selling the properties and waiting 12 months to sell the business or shares works for ER. Again cash is irrelevant because he could distribute the cash immediately after the property sale.
Either way, cash becomes irrelevant. What is relevant is the order of events and the current status of the company.
If the company is currently non trading, selling the properties and waiting 12 months to sell the business or shares works for ER. Again cash is irrelevant because he could distribute the cash immediately after the property sale.
Either way, cash becomes irrelevant. What is relevant is the order of events and the current status of the company.
Alpinestars said:
It's not relevant whether excess cash is generated by the property sale. Instead of showing property on the balance sheet, the company will have cash. If the company is currently a trading company, it becomes irrelevant whether the non trading asset is property or cash.
If the company is currently non trading, selling the properties and waiting 12 months to sell the business or shares works for ER. Again cash is irrelevant because he could distribute the cash immediately after the property sale.
Either way, cash becomes irrelevant. What is relevant is the order of events and the current status of the company.
- OP currently has a company that may not qualify for ERIf the company is currently non trading, selling the properties and waiting 12 months to sell the business or shares works for ER. Again cash is irrelevant because he could distribute the cash immediately after the property sale.
Either way, cash becomes irrelevant. What is relevant is the order of events and the current status of the company.
- OP sells property and no excess cash is generated
- The company is trading and ER can be claimed
IF excess cash WAS generated then the cash MAY not qualify for ER. That is why I checked with the OP. By selling the properties he has turned a potential ER problem into a non-existent one.
I agree with your first paragraph, but I was moving one step forward and finding a solution. Your second paragraph assumes the OP would rather distribute the cash at his marginal rate than the 10% ER...
Cash was most definitely relevant and the OP now has some choices.
- Get clearance with the current situation. I think it's quite possible it would qualify given the properties are being used for trading loans
- Sell the properties then qualify for ER
- (possibly the best solution) Sell the most recent property with no gain, reduce his non-trading income and qualify for ER anyway.
MaxFromage said:
- OP currently has a company that may not qualify for ER
- OP sells property and no excess cash is generated
- The company is trading and ER can be claimed
IF excess cash WAS generated then the cash MAY not qualify for ER. That is why I checked with the OP. By selling the properties he has turned a potential ER problem into a non-existent one.
Maybe this is why you're misunderstanding. If the company is non trading, and selling the properties makes it trading, the OP will NOT get ER immediately. The company has to be a trading company for 12 months prior to the disposal. - OP sells property and no excess cash is generated
- The company is trading and ER can be claimed
IF excess cash WAS generated then the cash MAY not qualify for ER. That is why I checked with the OP. By selling the properties he has turned a potential ER problem into a non-existent one.
The company would therefore have to continue trading for 12 months and then OP could make the disposal (as set out in my earlier post). I'll say it again, cash is not relevant.
I appreciate there's a 12m gap and it is noted in my earlier posts. Cash was and is relevant to claiming ER. So if someone has a trading co worth £1m but £750K is cash, they will automatically get ER? No is the answer without a little more fact finding which I was doing. It may not directly affect trading/non-trading but it is required to come up with a solution.
This is what I was referring to and needs to be considered in this case:
http://www.taxation.co.uk/taxation/Articles/2012/1...
http://www.taxation.co.uk/taxation/Articles/2012/1...
I rarely run positive cash balances. There are occasions when I do, but trading quickly uses the cash. I can also easily over-trade to utilise any excess cash if need be.
The whole idea is to prepare the company, one way or the other, to make it ER suitable for either a sale or wind-up. I am aware that whatever structure this implies would have to be in place for 12 months before I do anything else, and that cash would need to be actively employed in the trade.
It seems to me (from your very helpful responses) that my best options are:
1) Seek clarification from HMRC as to my status, in light of the fact that the properties are currently funding the trading activities (and that I should pass 2 out of the 3 criteria highlighted earlier).
2) Sell one / both of the properties and use the cash for 12m in my normal trading, repaying loans and cancelling OD facilities etc).
3) Restructure the company to separate the trading-investment activities (my accountant friend advised me as to what this was called, but I can't remember off-hand - "a section-XXX re-organisation"?!
The whole idea is to prepare the company, one way or the other, to make it ER suitable for either a sale or wind-up. I am aware that whatever structure this implies would have to be in place for 12 months before I do anything else, and that cash would need to be actively employed in the trade.
It seems to me (from your very helpful responses) that my best options are:
1) Seek clarification from HMRC as to my status, in light of the fact that the properties are currently funding the trading activities (and that I should pass 2 out of the 3 criteria highlighted earlier).
2) Sell one / both of the properties and use the cash for 12m in my normal trading, repaying loans and cancelling OD facilities etc).
3) Restructure the company to separate the trading-investment activities (my accountant friend advised me as to what this was called, but I can't remember off-hand - "a section-XXX re-organisation"?!
MaxFromage said:
This is what I was referring to and needs to be considered in this case:
http://www.taxation.co.uk/taxation/Articles/2012/1...
http://www.taxation.co.uk/taxation/Articles/2012/1...
This is dragging a bit. Converting non trading properties to "non trading" cash changes nothing. Given OP would need to continue the trade for 12 months, he is highley unlikely to retain "non trading" cash in the company??
Totally moot point.
isleofthorns said:
3) Restructure the company to separate the trading-investment activities (my accountant friend advised me as to what this was called, but I can't remember off-hand - "a section-XXX re-organisation"?!
. I imagine he is referring to a S136/s139 scheme of reconstruction. You will need bona fide, non tax, commercial reasons in order to qualify for the tax free reconstruction. I doubt you'd get the relief where you are trying to manage ER, but again there is a clearance procedure.
Alpinestars- I agree, you clearly know what you're on about, so I'm struggling why you can't see the relevance. Anyway the OP has what he needs.
OP- I don't think your scenario is complicated enough to require restructuring, just a bit of planning from a good local firm and you will get the result your looking for.
OP- I don't think your scenario is complicated enough to require restructuring, just a bit of planning from a good local firm and you will get the result your looking for.
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