Did Not Do MVL - What options do I have now Did Not Do MVL - What options do I have now
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  1. #1

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    Default Did Not Do MVL - What options do I have now

    After working for the best part of ten years through a Ltd I managed to accumulate quite a warchest in my Ltd. I dont feel it is necessary to disclose numbers but I think this question can be answered if the amount was a few hundred K to 900K.

    I have asked my accountant but he normally is just used for calculations rather than specific tax planning and I d like to get a second opinion from some of you guys.

    I can see a lot of very valuable info on MVL here but my problem is I did not do MVL when I could so I think thats out of the question. If I am wrong and I can do MVL please do say ...

    I stopped contracting in 2016 and moved abroad. I had a stuffed warchest and bought a property in company name - It was all the rage at the time and sometimes I wish I had not done that. It would have been better to MVL and walk away with the cash or create a new SPV with that clear cash.

    I m quite sure that I wont do contracting in the UK again so the rent gets paid in the UK and I leave everything ticking over. Its a 3% return which is not great but its something. Anyway...

    My questions:

    I am now quite nervous that I have a company with £100 share capital which is now worth in excess of a few hundred k and stuck with an illiquid asset and I am thinking of how I can pass this on and what the tax implications would be. I dont have kids and not married so the spouse gift does not work

    If most of the money was created by contracting in IT by a one man band and then the SIC code changed a few years to property development and then a property acquired and rented out if I was to sell the properties could I in theory do MVL and qualify for ER at 10% tax? Maslins were not sure although Chris was very helpful so thumbs up to him.

    Is it possible for me to gift my shares to someone I trust? I dont want to do anything illegal just tax planning and I know if I was still in the UK this will attract capital gains tax as if I had sold it at full market price. However as I have moved outside the UK and am in a country where no capital gains is payable is this in theory possible after I have been here for five years and therefore out of reach of HMRC for capital gains?

    Any pointers would be helpful and appreciated- In hindsight I should have MVL'd but I didn't so thats life and the sums involved are really quite large after a decade of selling my soul to the devil so this could be a life changing decision and preparation step for me

    Thank you all in advance for any help

  2. #2

    Some things in Moderation

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    Speak to an MVL practitioner- they’ll be able to tell you if you can or can’t use MVL.
    "I can put any old tat in my sig, put quotes around it and attribute to someone of whom I've heard, to make it sound true."
    - Voltaire/Benjamin Franklin/Anne Frank...

  3. #3

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    Thanks Cojak. I m afraid the answer looks unlikely from what maslins were saying and the fact that it’s now an investment company. My accountant also said he did not think I qualified so I have to err on the cautious side. Besides doing an MVL would mean selling the property and the market is not great

    Do you know anything about my second proposal. From what I can see it does have some credibility as long as I remain outside the Uk for five years.

    I could in theory “sell” my shares to someone I trust in my ltd for full market value but not pay any capital gains tax whatsoever. Is that idea even a starter and do you know if that has been discussed at all in the past and what if anything it would be called.

    I’d obviously have to be careful about when I exactly “sold” the shares but that would be a massive benefit

    Thank you again for pointers

  4. #4

    Default Distribution of assets in specie

    Quote Originally Posted by NowPermOutsideUK View Post
    Besides doing an MVL would mean selling the property...
    Hi, this may not necessarily be true. In an MVL, as well as distributing cash to shareholders, a liquidator can also distribute other assets. This is known as 'distribution in specie'. The liquidator just declares a distribution of assets being '1 property at 123 The Avenue' with value £X. [The same can be done with motor vehicles and computer equipment etc.] Having received that distribution the shareholder will be subject to capital gains in the normal way.

    The liquidator will need some kind of valuation on the property. By distributing the assets in this way there's no need to find the cash to buy an asset from the company.

    It's pretty simple from the point of view of the liquidation but obviously there may be practicalities to sort out as the property changes legal ownership e.g. SDLT, secured borrowing, rental agreement, agency agreement, insurance etc. The company itself may realise a gain on disposal if the value has increased while the company held it, in which case it will have some tax to pay.

    (I'm assuming in this case that you own the 100% of the shares.)

    I realise this doesn't answer all you questions but it may be part of the puzzle.

  5. #5

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    The entrepreneurs relief (or business asset disposal relief, BADR, as its now called) is a grey area. Had you done an MVL a few years ago, it would have been fairly clear cut. The company's history at the time was all trading. However, where you then used that company cash to buy a property to be let out, and did no further trading, I think most would agree from then on it's an investment company.

    A few months at the end of a company's life where there's bank interest received from money in a savings account but no trading income is unlikely to cause issues. A few years at the end of a company's life is a different matter. Potentially you might be able to argue that given most of the funds were generated from trading activities you should still qualify, but I think you may struggle.

    As Jeremy has suggested many liquidators should be ok to distribute the property without you selling it first. This would likely rule out most of the "cheap" providers that just do the simplest cases, but plenty of liquidators would likely be happy to assist. This may help in terms of avoiding you selling the property when the market is not great as you state. However I still think you'd struggle to qualify for BADR.

    BADR may well be irrelevant though if you're not UK tax resident and have no plans to return to the UK. I doubt anyone on this forum can advise on what the tax implications might be in the foreign country you're in now. Perhaps there's no capital gains in which case maybe you don't have a problem.

    It seems your primary question is a tax one, which will likely revolve around the country you're currently in. I'd suggest liaising with a tax advisor there, and going with their suggestion. Whether you then do an MVL, sell the shares to someone, or sell the property is perhaps more of a transactional thing based on the local tax consequences.

  6. #6

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    Thanks Maslin for a great post and lots of info - Appreciated

    Will look into distribution as species as suggested here although from what I can see SDLT is payable which is going to be significant in this case

    I have taken tax advice in the new country and I am certain there is no tax due on capital gains.

    What remains unknown is whether HMRC can levy CGT on share disposal of my shareholdings in my ltd.

    From what I ve researched it appears that in general no CGT is payable upon share disposal unless it has "Interests in entities deriving at least 75% of their value from UK land (i.e. ‘UK property rich’ entities) where the investor has a 25% or more interest in the property rich entity. "

    Non-Resident Capital Gains Tax - KPMG United Kingdom

    Is the right way to interpret this that if someone disposes of shares in a UK company which holds property then CGT is paid ti HMRC irrespective of whether you are Uk tax resident or not

    I know this is fairly niche but this is hoepfully is useful to those who did not do MVL or are thinking of not doing MVL and what they will have to do after

  7. #7

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    Jeremy has sent me to this thread to help out. I'm a Chartered Tax Advisor and Trust and Estate Practitioner and advise on the messier end of tax planning. Obviously this isn't formal advice without knowing you and the circumstances, but it's probably a helpful outline.

    As previously mentioned you won't get Business Asset Disposal Relief (previously Entrepreneurs Relief) if the business ceased trading more than 3 years ago. There is always a bit of flexibility on the date a business ceased trading, but once all invoices are paid and there's no attempt to get new business then the trade will have ceased.

    As Jeremy says, it's perfectly feasible to MVL and distribute in specie and if structured in the right way there should be no SDLT unless there is a mortgage which is transferred as part of the MVL. The assumption of debt will be consideration in this case and there will be SDLT based on the value of the mortgage, so if there is a big mortgage there will be a big SDLT charge (although reduced by the current £500k nil rate band). See more here: SDLTM04042 - Stamp Duty Land Tax Manual - HMRC internal manual - GOV.UK

    Finally on the CGT point, if we were having this discussion back in March 2019 then there would be no CGT. Unfortunately due to the changes introduced last year, assuming you have a property rich entity (which you have correctly spotted) there will be a CGT charge on the distribution as you are non-resident as if the company had sold the property to you. However, there is also a rebasing element which can remove any CGT prior to April 2019, which may wipe out much of the tax. This is unless it has already been rebased under the 2015 ATED rules. Finally, certain DTTs can override the position, so it'll depend where you are resident. As you can imagine the tax treatment of this can be pretty horrible to work out and I would suggest that you seek some professional (and specialist) advice on the calculation of this. The guidance for this can be found here: CG73920P - Capital Gains Manual - HMRC internal manual - GOV.UK if you want some bedtime reading.

    The other thing to bear in mind (which I've not spotted mentioned in the discussion) is corporation tax on the MVL itself. The cessation and distribution is a disposal for CT purposes and as such if the properties stand at a big gain in the company then there could be a further tax charge.

  8. #8

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    Quote Originally Posted by NowPermOutsideUK View Post
    I could in theory “sell” my shares to someone I trust in my ltd for full market value but not pay any capital gains tax whatsoever.
    I'm not sure if I'm being a bit thick here, but surely a sale of shares will be a capital gain?
    Your capital investment of £100 is now worth £x00,000. If that's not a capital gain I'm not sure what is.

    Happy to be corrected.
    See You Next Tuesday

  9. #9

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    Yes it is a capital gain. However if you are non Uk tax resident there is no cgt tax to pay in share disposal.

    Unless it’s a property holding company ....

    If it’s a normal business you can sell the business and walk away with all the cash with no tax to pay

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