Business Asset Disposal Relief

[bigbaddom]

Hi,

Can anyone help answer a questions I have.

I have spoken to my accountant but I am waiting on an answer.

I have a property trading company which currently owns one property funded through a directors loan.
Unfortunately I have been unable to sell the property and it is now being let out.

I would like to obtain funding against the property and that seems much easier to do as an investment company so I was thinking of changing the trade and keeping the property within the company for the next 5 years.

With regards to BADR is there a way to crystallise or account for the current increase in value which will allow me to pay 10% CGT when the company in finally wound down for the portion of gain attributable to the trading business?

Thanks,
Dom

[isleofthorns]

if the company only owns this one property?

1 - did you development it in any way to add any value?
2 - does the company engage in any other property-related trading activities?
3 - if you keep in your current company and finance it, will the proceeds be used for genuine trading activities?

To get the 10% on disposal of shares, your company needs to qualify as a trading company - you can look up what this means.

I'd have thought it best not to make your current company appear as an investment vehicle in any way. If you want to keep the property and let it, I'd set up a SPV under your trading company, then effectively sell the property with finance to the SPV. Do this at market value and pay tax on any profits.

Then use any funds remaining in the trading company for qualifying trading activities,

ps -- I'm not an accountant, so happily be corrected if one chimes in!

[bigbaddom]

Thanks for your answer.

Yes it’s only the one property. Yes it was developed and there is profit attributable to that property.

Selling it to another company would attract SDLT and negate the benefit the entrepreneurs relief would give so was trying to avoid that.

Finance is much easier to raise against an investment property company than a trading property company hence the consideration. The money would be used to repay a directors loan.

[isleofthorns]

bigbaddom said:

Thanks for your answer.

Yes it’s only the one property. Yes it was developed and there is profit attributable to that property.

Selling it to another company would attract SDLT and negate the benefit the entrepreneurs relief would give so was trying to avoid that.

Finance is much easier to raise against an investment property company than a trading property company hence the consideration. The money would be used to repay a directors loan.

if you raise funds against a property you've developed, you've not realised a profit. By then renting, you'll turn a trading activity into an investment one, and I would have thought it unlikely any subsequent sale and liquidation would benefit from any ER.

If you set up an investment subsidiary, and sell the property at a market rate (with finance attached), you can claim a group VAT relief (you'll have to keep for three years or so to benefit from this). The trading company can then repay your DL.

This doesn't get around this issue of ER entirely - you'd still have to demonstrate an on-going trade activity.

[bigbaddom]

Ok.

Thanks, I guess not as easy as I had expected.

I presumed that there would be clear rules around this, as I presume if I developed something that had been let out for 10 years previously it wouldn’t then all qualify as trading activity. I therefor thought if it were done the other way round then not all would be investment activity if that makes sense.

Thanks for everyone’s help. I will come back and let you both know what my accountant says in any case.

[skwdenyer]

bigbaddom said:

Thanks for your answer.

Yes it’s only the one property. Yes it was developed and there is profit attributable to that property.

Selling it to another company would attract SDLT and negate the benefit the entrepreneurs relief would give so was trying to avoid that.

Finance is much easier to raise against an investment property company than a trading property company hence the consideration. The money would be used to repay a directors loan.

If the subsidiary is indeed a subsidiary, won't SDLT group relief apply?

[bigbaddom]

Maybe - but how does HMRC look at BADR for a company that has an investment subsidiary?

[isleofthorns]

bigbaddom said:

Maybe - but how does HMRC look at BADR for a company that has an investment subsidiary?

Pretty much the same as for a single company.. ie, you have to be a trading group, rather an an investment group.

so, if you have an investment subsidiary, then the trading company needs to be sufficiently active to remain for the group to remain 'trading' in the round.