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bigduckontax
bigduckontax, Accountant
Category: Tax
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We are looking to buy a SVP company that was set up and acquired

Customer Question

We are looking to buy a SVP company that was set up and acquired property assets which they bought 2 years ago for c£3.5m. They have spent costs of around c£1m. We are buying the company for £6m. Question: If we were to then sell the property assets in the near future would we then have a tax CGT liability on £1.5m profit, between costs expended and the price we sell for? e.g. £4.5m costs = £1.5m profit with appropriate tax liability if sold immediately for £6m. Is this our liability or the sellers and how much tax would need to be paid? Please advise. Many thanks.
Submitted: 11 months ago.
Category: Tax
Expert:  bigduckontax replied 11 months ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. You must remember that the company is a separate legal entity. Companies are not subject to CGT, any gain (or loss) is merely passed through the company's trading account and included in the Corporation Tax (CT) computation. Thus 1.5M profit on the profit forms part of the trading activities as described. CT is at 20%. When you sell the company you are liable to CGT on any gain made ie what you get for it less 6m. This will be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. You have an Annual Exempt Amount of 11.1K to offset this gain. I do hope that I have shed some light on the position.
Customer: replied 11 months ago.
Thank you. We are looking to by the SPV company for £6m and then sell the property assets to a new co to then develop the site. Will we have a tax liability from c£4.5m to £6m put on us immediately when selling the properties to our new development company or not as we paid £6m for the shares and will be selling the assets for £6m to our new development company? Please advise.
Expert:  bigduckontax replied 11 months ago.
I am a diabetic and just about to eat. I will respond, probably within the hour, sorry.
Expert:  bigduckontax replied 11 months ago.
Your reply changes the situation entirely.
The sale of the property will generate a gain or a loss which will form part of the SVP company's trading activities. The acquiring company incurs no tax charge until it sells at some future indeterminate date.
Individual shareholders incur no CGT liabilities until they actually dispose of their shareholdings.
I do hope this helps.
Customer: replied 11 months ago.
So, by us buying the shares in the holding company for £6m and then transferring / selling the property assets to a JV new development co for £6m, we will incur no tax liability on the holding company which have costs or c£4.5m on a £6m share sale? Please advise clearly?
Expert:  bigduckontax replied 11 months ago.
You personally will incur no tax liability until you eventually sell the shares in the holding company. The company which sells or transfers the property will incur a gain or a loss which will form part of its trading activities and be subject to CT.
Customer: replied 11 months ago.
So if we buy the shares in the holding co and then sell the property assets of the holding co for £6m to a new co, the holding co will have a tax liability on £1.5m profit? Please advise?
Expert:  bigduckontax replied 11 months ago.
Correct, you have it to a 'T.'
Customer: replied 11 months ago.
What is a "T"?
Expert:  bigduckontax replied 11 months ago.
It is a very old fashioned expression going right back to the Tudor period. You have it to a T, means that you have it just right and was in common usage in Edwardian times.

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