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HMRC have published guidance on the stamp duty land tax (SDLT) treatment of de-enveloping transactions, which are expected as firms move to duck the new annual tax on enveloped dwellings (ATED).
Companies may de-envelope a property by a capital distribution to shareholders following liquidation of the company. The tax consequences of de-enveloping will depend on whether or not there is consideration given by the shareholders for the transfer of the property.
HMRC have published guidance on the stamp duty land tax (SDLT) treatment of de-enveloping transactions, which are expected as firms move to duck the new annual tax on enveloped dwellings (ATED).
Companies may de-envelope a property by a capital distribution to shareholders following liquidation of the company. The tax consequences of de-enveloping will depend on whether or not there is consideration given by the shareholders for the transfer of the property.
HMRC will not consider there to be consideration in two situations. The first is where the company is debt free, its only asset being the property, and there are no liabilities, other than issued share capital.
Shareholders in such an instance have given no consideration directly or indirectly for the property, and there is no SDLT liability.
The second situation is when debt is owed solely to the shareholder. HMRC explained their views in issue five of their SDLT Technical News, published August 2007, and confirm it still applies.
Where there is a third party (non-shareholder) loan secured on the property when the company is liquidated, the transfer of the property on a distribution will attract SDLT under FA 2003, sch 4 para 1 and para 8, where there is an assumption by the shareholder of liability for the debt.
If company had a third party debt that was repaid as a result of shareholder action before liquidation, it is possible there will be no charge to SDLT on distribution of the property because it will be in similar circumstances to the two situations outlined above.
FA 2003, s 75A could apply where the shareholder provides funds to the company, to allow it to discharge debt, before acquiring the property from the business, if the actions are involved in connection with the disposal or acquisition. Whether or not s 75A applies will depend on the facts of each case.
Further guidance on the correct application of s 75A can be found in the First-tier Tribunal decision in Project Blue Ltd (TC2777).
