CGT or Corporation tax ?

Question

We are thinking about transfering my business premesis into a Sipp.
My partner and i bought new premesis 4 years ago for 250k now valued at 350k.
if we sell property to our sipp do we have to pay CGT on the gain or do we pay corporation tax?
if its cgt then do we split the gain between us and can we use our annual cgt allowance against the gain?
so is it scenario a: gain of £100k pay corp tax at 20% tax bill of £20k added to annual bill then income tax of 40% when we take cash out of company - this seems a very unfair way of doing things.
Or is it scenario b;
Gain of £50k per partner reduced to 25% as its a business asset = £12,500 then deduct personal allowance of £9200 leaving a tax charge each of £3,300.

i hope its b.

PS. we have enough in our pensions to fund the purchase of the building into our sipp, we are just very concerned with the proposed increases in CGT through removal of taper relief/indexation.

Answer 1

You need to speak to your Accountant or Financial adviser about this because there are big figures involved here.
My initial questions/thoughts on the matter would be:
1 Sell now to SIPP and get Business Asset Taper Relief and pay tax on gain of £3,300 each (£1320 tax payable if liable at 40% tax). In this way you get cash from SIPP and pay tax on gain of £3,300.
2 Keep property and sell for say £350K after 5 April 2008. Tax would then be gain £50K each less annual exemption 9,200 = 40,800 taxable (tax payable at 18% tax = £16,320 each).
3 The general rule is that if you have an asset which qualifies for Business Asset Taper Relief you should consider selling and availing of this relief Before 5 April 2008 (when taper relief no longer applies).
4 Looks like you should avail of Business Asset Taper Relief and sell to SIPP now.
5 Get a written valuation of the property from a reputable valuer who is willing to stand over the valuation should the Revenue challenge the value and call in the District Valuer to give his opinion.
Remember...........this advice was free......and based on a 10 minute assessment of your situation.
Go see your own accountant for advice.
Hope this helps

Answer 2

Who owns the property now?

If you personally own the property and let it to the company then the sale to the Sipp will be a chargeable gain and subject to the individual CGT rules (your scenario b).

If the company actually owns the property then scenario a is correct.

This sale of the property should have been considered when it was purchased. Can you recall the reasons behind the decision, whichever one it was?

Answer 3

As you have a partner, I assume that a limited company is not involved here, so there will be no Corporation Tax involved.
The gain will be £100,000 less business taper 75% = £25000. Assessable as to half each = £12,500 less annnual allowance £9200 = £3300 at tax rate.
Alistair hasn't finished playing yet, so don't do anything in a hurry.

Answer 4

Have you considered, if utilising your option A the fact the business could engineer a loss, for example by making a large contribution to your pensions from the business.

It is prudent to note the proposed changes are not yet in effect and the government are under increasing preassure not to change CGT.

Answer 5

PLEASE take some proper professional advice, particularly if you are thinking of putting your property into a SIPP. There are quite a few pitfalls, but the outcome can be very good IF you are properly advised!

Good luck.