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How to make sure that transfer of a property between group companies is really tax free

How to make sure that transfer of a property between group companies is really tax free
How to avoid a tax headache when transferring property between group companies. Businesses often look to hold their business premises in a separate company from their trading company as there may be a higher risk of financial claims being made against the trading company. The usual strategy is to form a holding company to own the assets as this can provide protection in the event of such claims. Before transferring properties to a holding company careful consideration needs to be given to the tax consequences.

Corporation Tax
Where a parent company owns at least 75% of its subsidiary companies then they qualify as a group for chargeable gains purposes and chargeable assets such as properties can be transferred at a value that gives rise to neither a gain or a loss for tax purposes. In practical terms, this is usually the acquisition cost of the asset plus indexation allowance up to 31 December 2017. Furthermore, you do not need to make any claim in order to secure this relief.

Stamp Duty
The transfer of business premises to a holding company is a land transaction for stamp duty land tax purposes and this charge will be calculated on the market value of the property at the time of the transfer. The good news is that provided the holding company owns more than 75% of the ordinary share capital of the transferring susidiary group relief can be claimed on the stamp duty return so that no stamp duty charge arises.

VAT
In most cases the transfer of commercial premises will be exempt for VAT purposes but look out for two pitfalls when the transfer will be standard rated:-
i) where the property is less than three years old when transferred.
ii) where the subsidiary has opted to tax the property.

Look out also for cases where the property was purchased less than ten years ago for more than £250,000. The transfer would bring about a change of use for the property and so any VAT recovered when it was purchased would need to be adjusted. We can even get around this problem by making an election under S.198 of the 2001 Capital Allowances Act (by both the subsidiary and holding company) which effectively agrees and fixes the value of the transferred fictures and allows the holding company to continue claiming the capital allowances.

The transfer of commercial property to a holding company can be a useful strategy to protect that asset from claims by creditors or from litigation and if structured properly this result can be achieved in a fairly painless way from a tax standpoint. If you are looking to protect any property held within your current company structure speak to us and we can advise on how best to keep that property safe from financial claims.

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