Inside or Outside the Company?
Newsletter issue - April 08.
The recent changes to capital gains tax may have left you confused as to whether you should hold your assets, such as property, within your company or in your own name. There is no single answer to this question, as the factors to be considered will depend on your future intentions for the investment, your plans for passing on your wealth, and the possibility of selling the company.
If you hold a property personally and sell it for a profit after 5 April 2008 the gain will be taxed at 18%, after deduction of your annual exemption, which is £9,600 for 2008/09. Spouses or civil partners may choose to hold assets jointly, in which case two lots of annual exemption will be available to set against the gain before the next amount is taxed at 18%.
If your company sells a property for a profit after 1 April 2008 it will be taxed at 21%, or 28% if the total profits including gains, for the year exceed £1.5 million. Where profits exceed £300,000 the marginal tax rate may be 29.75%. However, the company can deduct indexation allowance from the gain before the net amount is taxed. Indexation allowance increases the cost of the asset for the effect of inflation while it has been held. So assets that cost very little or have been held for a relatively short period gather only a small amount of indexation allowance but those with a high cost and long period can gather a significant amount to offset. The company does not have an annual exemption to set of against its capital gains.
Where the asset is sold by the company the sale proceeds remain within the company. If you want to use those proceeds for personal investments you need to extract them from the company, which may create a further tax charge. If the asset is sold while being held in your own name the sale proceeds will be available to you immediately to invest as you wish.
If you transfer an asset from the company to your own name this should be done at market value, not at the historical value recorded within the company accounts. This transfer may well create a tax charge for the company and a stamp duty charge for you. So it's best to decide who should hold the asset before it is purchased.