If you run a business from a property that you own there are tax benefits in transferring the building’s ownership from the business, over to you as an individual.
You can also transfer it from your company to one or more owners.
Here’s how it works
To explain how this works we’ll use the example of a sole director of a company.
Let’s call him Bob from ABC Co.
Bob wants to transfer ownership of his company’s building to himself with ABC Co continuing to trade from the same building.
There’s a key term here (which you may have heard of) and it is ‘dividend in specie’.
Dividend in specie is the transfer of a company asset as a benefit to an individual rather than the asset being sold to raise cash, which is then taken as a benefit.
This is usually done when allocation of the physical asset is the most beneficial option.
The dividend in specie benefit
Creating a dividend in specie means that Class IA NI taxation does not have to be paid and this is the case for Bob and his property transfer.
In our example, the building owned by ABC Co is valued at £200,000.
If this is transferred to Bob as a dividend in specie by avoiding Class 1A NI he will have to pay £61,111 in tax. If the Class 1A NI was still in place and the building was simply given to Bob (and taxed on its ‘value as a benefit’) his fee to HRMC would be £90,000.
Please note however, that after 6th April 2016 the UK tax on dividends will change from 37.8% to 38.1%; so we’d certainly advise Bob to act sooner than later and perform the transfer before 5th April.
If he fails to do this, his fee will jump from £61,111 to £74,295.
Usually therefore, a dividend in specie is the most tax efficient way to transfer property but to ensure HMRC accepts the arrangement you must have all the right paperwork in place.
We can help
Here we’ve just summed up the property transfer and dividend in specie process and there’s some more detail and requirements which we’ve not had space to go into.
However, if you would like to know more about how to perform a HMRC compliant business property transfer, then we highly recommend you get in touch.
We go beyond
Aspirations is proud to be an accountancy company that always ‘goes beyond’ and we’re here to help you and your business have more time, pay less tax and reduce administration.
To start the conversation please call Aspirations today on 01634 298238.
You can also email firstname.lastname@example.org
Disclaimer: Articles are accurate at the time of posting but may be affected by legislative changes and individual circumstances. Please always contact us for personalised advise and assistance.