Buying building from own firm

MK writes: My wife and three children, who are now all over 21, are equal share owners of a company that we set up six years ago. The company, through its trading, invested in a property. We plan to dissolve the company, whose net assets will be about £90,000. We would like to keep the property in a tax-efficient way. I am told we have to buy the building from the company. The company would then pay out dividends, from which we would deduct what we paid out in the first place. There would be a taxable element in the money that the shareholders received. Can we not simply agree with the Inland Revenue on what that tax charge would be without the exchange of money? If we had to buy the property we would need to borrow money.

Answer

There are two potential chargeable events that need to be considered in relation to capital-gains tax. First, the company would have a potential gain on the sale of the property to the family. The second would arise on the individual shareholders if the net assets of the company were distributed to the shareholders by way of a capital dividend. There would be no need actually to purchase the property from the company. It would be possible to agree a value with the Inland Revenue and distribute the property in specie to the shareholders by way of capital dividend. You would need the agreement of the Revenue to pay the retained earnings of the company to the shareholders as a capital dividend. This would still be a chargeable event for the company and potentially would give rise to a corporation tax charge on the gain made by the company. You need to make calculations to see if the tax charges would be worth incurring because it would be possible to keep the company as an investment company, thereby saving any tax charges.