How can I buy a property owned by a company?

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Article

27 May, 2020

The most obvious answer is to simply buy the property, as a company asset, from the company. But there is another option - to buy the company itself! Whilst this may not be the immediately obvious choice, there can be benefits to this - but each option needs to be considered on its merits. Here are some points to consider:

Stamp Duty/Stamp Duty Land Tax

Buying a company:

  • The stamp duty that you will pay if you buy a controlling interest in a company rather than a property will be charged at the lower rate of 0.5% of the sum paid for the shares or where acquiring shares in a non-UK company, no stamp duty will be payable at all.

Buying a property:

  • In contrast, Stamp Duty Land Tax (SDLT) on a commercial property purchase would be up to 5% in England and Land Transaction Tax (LTT) in Wales up to 6%.
  • Any SDLT paid would be added to the base cost of the property thereby reducing the 'gain' made for Capital Gains Tax/Corporation Tax purposes when the property is next sold.
  • If you are taking a lease, SDLT may be payable depending on the level of rent payable under the lease, as well as being payable on any premium paid, and on any VAT paid on either.

VAT

Buying a company:

  • The seller of the shares will not charge VAT. You should keep in mind however that this does mean that you will be unable to recover VAT on any professional fees you incur in connection with the acquisition.

Buying a property:

  • VAT may be payable if you buy a property: this depends on whether the seller is VAT registered and, if so, if they have opted to tax the property for VAT, and whether the sale could be classed as a transfer of a going concern.
  • VAT you incur in connection with buying the property should be recoverable, assuming you are VAT registered, you've opted to tax the property and that option hasn't been disapplied.
  • If VAT is payable, SDLT will be payable on any VAT charged (yes - taxed on tax!).

CGT/Corporation Tax

Buying a company:

  • If the value of the property in question has increased since the time at which the target company originally acquired it, then as buyer of the shares in the company you will indirectly assume the capital gains tax charge.
  • If your future intention is to retain the property or to sell the target company still holding the property then this is unlikely to be of any impact to you however if you intend to sell the property then you will have to consider this tax liability (the difference between the base cost and sales price achieved, less allowable expenses).

Buying a property:

  • If you buy the property, the base cost of the property will be what you paid, together with any SDLT paid on the purchase price and related professional fees.

Other liabilities

Buying a company:

  • When acquiring shares in a company you will inherit both its assets and its liabilities. This will include all of the company's legal and financial (including tax) liabilities. Thorough pre-purchase due diligence is therefore essential to identify all assets and liabilities and to deal with them accordingly and this will increase the costs of the acquisition.
  • When acquiring the shares, you'll acquire all assets, meaning that you will acquire any contracts the company is party to and any employees it engages.

Buying a property:

  • In contrast, buying the property is 'cleaner' as you'll only be buying the property and not any other assets or liabilities of the company.

Timing

  • A share purchase is likely to be more complicated than a property purchase. More time from your professional advisors may therefore be required, as well as more of your own time.

For more information contact Helen Marsh in our Commercial Property department via email or phone on 01254 224217. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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