How to avoid double tax when transferring assets into a firm
Apart from having to stump up stamp duty, there is no problem transferring assets into a company. The problem is getting land back out again. It often results in a situation where a double tax charge arises. It is possible, however, for the shareholders to avoid this scenario by holding the property personally and either charging a rent to the company or leasing the property to the company rent free.
In the two examples shown left, we make a gain of €100,000 on disposing of property. Regardless of which trading vehicle you use, there is capital gains tax due of €25,000 on the disposal of the property. In example C, there is an additional capital gains tax payable of €18,750 to get the proceeds of the disposal of land into your personal name from the company if you liquidate the company. If you do this, the company is no longer available for you to trade through.
If you wish to keep the company intact, you could opt to take the proceeds by way of income. But as example D shows, you get hammered even more severely with income taxes and universal charges this way. In fact, the total tax payable by selling the property as a company comes to a massive 64pc -- or €64,000 -- by the time you personally receive the money in your hands. This doesn't compare well to the sole trader who would only be paying €25,000 on the same transaction.
It should be noted that this double taxation charge is only an issue if you wish to take the funds out of the company.
It is important to note that stamp duty of 6pc will still apply, although generally there is no stamp duty on the transfer of stock and machinery.