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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3708
Experience:  FCCA FCMA CGMA ACIS
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I have a limited company with 7 holiday homes all on one site

Customer Question

I have a limited company with 7 holiday homes all on one site (only permission for 30 day max lets)
Property base value £379,000.00 potential sale £1.2 Million or £1.5 mill with residential permission.
I am in the process of trying to obtain residential status which could turn my company into a letting company
Can I sell and claim entrepreneurs relief as holiday lets and if so do I have to sell the shares or property then dissolve. What base value and how do I calculate this ?
If I get permission for residential will this mean I cant claim entrepreneurs relief
I own 100% shares
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
In my opinion your entitlement to Entrepreneur's Relief is attached not to the property, but to your shares in the company which holds those assets. Assuming that you were in on the ground floor so to speak, ie in at the beginning, then the relief might be available and would reduce the rate of CGT to 10% on any gain on the sale of your shares at current market value.
I do hope I have helped shed some light on your position, albeit not quite in the way you were expecting.
Customer: replied 2 years ago.

Not sure that gets me any further

Do i go for residential status ?

Will this jeopardise the relief on my shares

Are the shares valued at £1 for the gain

Which it states on my certificate.

Expert:  bigduckontax replied 2 years ago.
Please advise, are you referring to your own residential status/
Customer: replied 2 years ago.

The properties are let on only a 30 day max let like a hotel

If i get residential status on the property i can sell it as a house or offer long term lets

I think a ltd company with rental properties cannot get entrepreneurs relief

But i am not sure

Do i go for planning to increase value or do i leave as they are because i will lose the entrepreneurs relief.

Expert:  bigduckontax replied 2 years ago.
The company can indeed not get entrepreneurs' Relief. Here is HMRC preamble on this Relief:
'Entrepreneurs’ Relief is available to individuals and some trustees of
settlements, but it is not available to companies or personal representatives
of deceased persons or in relation to a trust where the entire trust is
a discretionary settlement. Page 6 gives more details of the qualifying
conditions for trustees of settlements.'
However, as I told you, your ownership of the company shares could give rise to the Relief if you disposed of them, assuming that you were an initial investor in the company.
I now have an inkling of what you are getting at. You wish to change the use under planning rules. Once you get them from C1 to C3 then they will be marketable as dwelling houses or be used for long term lets. Whether a Local Authority will approve a change of use is not a matter for tax experts and outside the scope of our practice.
You can realise your investment simply by selling the shares in the property that you own. Entrepreneurs'Relief may then be available limiting the CGT on any gain to 10%. This relief is attached to the sale of the shares and is quite independent of the company's activities.
I do hope I have clarified matters for you and you can see your way clear to increasing my rating.
Customer: replied 2 years ago.

Dont think i am getting my message across

I believe i have a good chance of c3 permission.

If i get this then sell shares does this affect the relief. I did not think shares in ltd companies that

holds just residential lettings gets the relief

I am unsure whether to continue my app for

C3 without knowing the tax situation

Expert:  bigduckontax replied 2 years ago.

I have quoted the relevant part of HMRC advice [edited] on this matter below. You will see that there is no mention of the relief not being available to companies of your type

'Disposal of shares in or securities of your personal company

If the business is owned by a company in which you dispose of the shares or securities, then throughout the qualifying period of one year the company must be:

• your personal company, and

• either a ‘trading company’, or the holding company of a ‘trading group’, and

• you must be either an officer or employee of that company (or an officer or employee of one or more members of the trading group). A Contacts A company is your personal company if you hold at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in the company.

It is possible for shares acquired under the Enterprise Management Incentive Scheme to qualify for Entrepreneurs’ Relief where the ‘personal company’ requirement is not met (see guidance at CG64052). The one-year qualifying period ends generally on the date of disposal of the shares or securities. The exceptions are where the company ceases to be a trading company, or to be a member of a trading group, within the period of three years before the date of disposal. In such cases the qualifying period ends on the date the company ceased to qualify as a trading company or a member of a trading group. The relief is also available where either:

a) the company is wound up and dissolved with your shares being cancelled and a capital distribution is made in the course of that winding up, or

b) any other capital distribution is made. In these cases, the qualifying conditions must all be met throughout the year ending with:

a) either the date on which the capital distribution is made, or

b) if earlier, the date of cessation of the trading qualification and the capital distribution is made within three years of the cessation.'

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3708
Experience: FCCA FCMA CGMA ACIS
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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