Transferring or selling property to offshore company - USERNAME:Martin - 19/05/2016
Tax Question:
I am looking at setting up an offshore company to hold 3 UK properties and would like some advice on whether it is better to transfer or sell the properties to the company, or does it matter. I am non-resident in the UK for tax purposes. The properties are below the SDLT levels.
If I transfer the property to the company can this be done with a fixed value or would it be done at the current market value? I had the properties valued in April 2015, but if I transfer the properties with a higher value I can use my annual allowance and my wife's annual allowance, plus any capital improvements to reduce my CGT liability, which will reduce any future CGT liability for the company if there is any future increase in value.
To reduce the company tax liability on the rental income I was intending to pay myself interest on the transfer value of the properties, however, if I have transferred the properties rather than sold them to the company can I still do this?
My other option would be to make a loan to the company for it to purchase the properties from me.
Answer:
If I transfer the property to the company can this be done with a fixed value or would it be done at the current market value? I had the properties valued in April 2015, but if I transfer the properties with a higher value I can use my annual allowance and my wife's annual allowance, plus any capital improvements to reduce my CGT liability, which will reduce any future CGT liability for the company if there is any future increase in value.
This would be a market value transfer for UK capital gains tax purposes. Therefore the company would hold the properties at the market value at the date of transfer. For CGT purposes the actual agreed consideration is irrelevant.
To reduce the company tax liability on the rental income I was intending to pay myself interest on the transfer value of the properties, however, if I have transferred the properties rather than sold them to the company can I still do this?
My other option would be to make a loan to the company for it to purchase the properties from me.
To pay interest you would need to sell the properties to the company and leave the proceeds outstanding as a loan. The company could then charge interest.
A key issue to watch out for if charging interest would be whether UK income tax should be deducted at source. This would apply if the interest had a UK source.
We've looked at this in detail in this Practitioner Zone report: