Gift relief on transfer of buy to let property to a company?
Question: I transferred a property into a company that was wholly owned by me. The property was a residential buy to let property.
The market value of the property at the date of transfer was £210,000. On the TR1 form at the land registry I stated that 'the transfer is not for money or anything of any monetary value' and paid stamp duty on the transfer.
My questions all relate to this.
In my accounts I have Dr Fixed assets and Cr Directors loan for the £210,000. Does this mean that I can extract this amount free of income tax?
Should I make a gift relief claim to hold over the capital gain on the transfer to the company? If so how do I go about doing it?
Answer:
You could extract the value of the company free of income tax if the property was sold to the company by you, as the company would then owe you the agreed consideration for your disposal of the property. Therefore if you agreed to sell the property to the company for £210,000 the credit to the DLA should have been £210,000. This could then be extracted by you free of income tax and NI, as this is simply your disposal proceeds that the company owes to you.
If you gifted the property to the company, the company would not owe you anything, and as such there should not be a creditor in the balance sheet.
Therefore, no cash could be extracted free of tax and NI. There is also the intermediate position (eg a part disposal/gift) which would allow part of the value of the property to be extracted tax free (ie the part disposal element).
You would therefore need to decide how the property was in fact transferred to the company, however the fact that you have entered the value of the property in the accounts as a creditor and paid stamp duty on the transfer would indicate the property was sold as opposed to gifted.
In terms of gift relief on the transfer to the company this would not be available for a number of reasons. Firstly the assets would need to be business assets (which would usually exclude buy to let properties) and secondly, if you sold the property to the company, there would be no undervalue ('or gift') that gift relief would apply to. You would effectively be selling the property at full market value, and then leaving the proceeds outstanding via a DLA and extracting in the future.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).
He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
=============================================================
Disclaimer
=============================================================
i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.
ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.
These Notes (and Disclaimer) do not affect your statutory rights in the United Kingdom.