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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4770
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Customer: replied 1 year ago.

On the previous question was the 2 year period normal or can it vary?

I formed a limited property company in November 2008 with myself and my two sons as directors with each son having 49% ownership and myself 2%. I owned three residential properties and by November 2009 I had transferred them to the new company as a gift and without any payment. I had all the valuations valued from a very reputable chartered surveyors company, and informed the HMRC what I had done. Then from my own personal account, I paid the all the Capital Gains Tax due based exactly on these valuations.

By November this year all the properties will be outside the seven year period and exempt from Inheritance Tax.

These properties were a gift and I wanted to them to appear on the balance sheet as capital, based on their valuation but my accountant has labelled it a directors Loan even although no loan agreement exists. The result is that the loan shows the company as barely solvent. The accountant says he does this because it is a tax advantage but I cannot see this.

In future years should any of these properties be sold what would the tax liabilities be?

Can the properties be quoted on the asset side of the Balance Sheet as “Property” and on the other side of the Balance Sheet as “Capital”?

I would value your advice and any other comments you wish to make.

You actually did not have to pay Capital Gains Tax (CGT) on the date of transfer as the gains would have been entitled to Incorporation Relief and the tax deferred and only kick in on your sale of the company. These properties should appear in the company's books of account as a Fixed Asset, a debit entry. The contra to this would be a posting in the Director's Loan account in your name. Within the company's tax computation on sale might be a gain or a loss. In any event companies are not subject to Capital Gains Tax (CGT), all such gains or losses passed through the company's trading accounts and ultimately exposed to Corporation Tax (CT) which is at 20%. I have explained the book keeping transaction in relation to the incorporation. I do hope that you have found my reply of assistance.
Customer: replied 1 year ago.

I wish I had known you when I started the company. It seems I paid the taxman a fortune for nothing! Is there a way to redress this? How come Rangers FC and BHS were sold for £1?

You could always apply to HMRC for the correct treatment to be applied and your CGT payment refunded. They won't like it, of course, but the law is on your side. That Department would far rather keep it as a credit against any CGT due on ultimate disposal. I cannot comment on the disposal of Rangers and BHS for a quid. The activities of the buyers is now under extensive official scrutiny as you will have probably seen from the media. A lot of this pricing is tied up in underfunded pension schemes; look what happened after Captain Bob fell off his yacht to go for his final swim on a dark night of the Canaries!
Customer: replied 1 year ago.

At the start of my question I asked this about the VAT: On the previous question I asked was the 2 year period normal or can it vary?

Could my accountant make the application for me or do I need a lawyer?

I only mentioned the tow years in passing to allay any suspicions at HMRC that the registration was a deliberate tax avoidance measure. After all, the company should not be out of pocket as the rental invoices merely have VAT added, then rendered to HMRC at quarterly intervals. The overall cash flow is not affected. You can apply for de-registration yourself. There is no real need for you to use your accountant or a solicitor for what is essentially a simple process.
Customer: replied 1 year ago.

What I meant was: Can my accountant deal with the HMRC or do I need a lawyer to get back my Capital Gains Tax I unnecessarily paid.

I have just had another thought. Wil this Directors Loan be subject to Inheritance Tax?

It should be well within your accountant's ability to undertake this action. The Director's Loan is an asset; whether it has any value as at the date of your decease remains to be seen. As an asset it should be taken into account in an Inheritance Tax (IHT) computation, but, of course, at a realistic price depending on the long term possibility of repayment.
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Thank you for your support.
Customer: replied 1 year ago.

The loan figure should not exceed the new Inheritance Tax limit anyway.

Many thanks for your help you have been excellent. I know where to find you in the future.

Good luck,


Delighted to have been of assistance Norman. IHT kicks in at 325K and is at a 40% flat rate. The 325K is inflated by any inter spousal or charitable bequests. If charitable bequests are 10% or more of the estate then the rate falls to 36%.