My company owns a property. Is there a tax advantage in transferring ownership into my hands?
Does your company own property that you use for your own domestic purposes? If the answer is ‘yes’, then you’ll know about ATED – Annual Tax on Enveloped Dwellings. In fact, you won’t just know about it; you’ll hate it. It’s a repeating annual charge aimed purely at deterring companies from owning residential properties. The question is – should you transfer the property to personal ownership? And, if you do, what are the tax implications?
ATED - How does it work?
The government introduced the Annual Tax on Enveloped Dwellings back in 2012. Its aim was to deter companies from owning residential properties, which the company owner(s) might use for their own domestic purposes.
Each successive year, the government’s net has spread wider, entrapping increasingly lower value properties. This is the value of property that has been subject to the charge –
For returns for the year 2013/2014 onwards – houses valued in excess of £2,000,000
For returns for the year 2015/2016 onwards – houses valued in excess of £1,000,000
For returns for the year 2016/2017 onwards – houses valued in excess of £500,000
Of course, ATED doesn’t apply where the property is used for a legitimate business purpose, for example, a letting business where the tenants are all third-party.
Easy answers are not always right answers.
Surely it’s beneficial to transfer ownership to the business owner or owners? Well, at face value – yes. Your company would no longer be paying the annual charge. But (and isn’t there always a ‘but’?) there are tax implications for the new private owners.
Let’s keep things simple and look at the situation where the company is owned by you, a single shareholder. The easiest solution is for you to buy the property from your company at its market value. Of course, simple answers aren’t always best answers. The problem with this solution is that it’s the most expensive route. You would have to:
Raise the money for the purchase – either from already taxed income or from personal borrowings.
Pay stamp duty (or the Scottish equivalent).
Once you’ve paid the company for the property and try to claw the money back, there will be income tax to pay.
If the property had risen in value between your company buying it and then selling it to you, there will be Capital Gains Tax to pay.
Buy at a discount
Let’s suppose you buy the property for your company but can’t afford the full price, you can buy it below market value. There will, of course, be the benefit of having to find less up-front cash. But:
You’ll still have to pay Stamp Duty, based on the full price of the property.
You’ll be taxed (at the dividend rate) on the difference between the actual price you paid and the market value, because this amount will be treated as income.
Pay in instalments
An alternative would be to contract the sale at market value and spread the payments over a number of years. This way, there’ll be no income tax to pay, but of course, you won’t escape Stamp Duty. The big disadvantage is that your company will have to pay the Director’s Loan tax (s.455) at 32.5% of the outstanding debt. At least this is temporary and can be claimed as you repay the company over the years.
Transfer via distribution – the most favorable solution?
There is a final way that can be cost-beneficial. Transfer the property using a distribution in kind, as with a share dividend. This isn’t a sale, so there would be no Stamp Duty to pay. However, there would still be Income Tax implications for you and Corporation Tax for your company.
So there we have it! Yet again, we learn that, in tax law, there are few easy answers. And yet again we learn that going it alone can be dangerously expensive.
This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Pease, consult an attorney if you’d like to get an advice on your interpretation of this article.