Deed of variation in favor of a company

Deed of variation

I replied to a question here about 'gifts to companies.

You can read my understating of ‘gifts’ to Ltds or the fact you can’t make a gift.
Another discussion here.

I think this raises an interesting point: -

Mr. Brown executes a DOV if favor of his brothers limited company. £500,000 property unencumbered.
On the assumption I’m wrong here and you can ‘gift’ the property.

My question is:

SDLT due under s.53 FA 2003?
Is CGT due? If applicable?
How would “Brown Limited” show the £500,000 on the P&L and Balance sheet?
Would it sit in the ‘profit reserve’ as taxed.
Would it create a liability to the company or is the DOV absolute?

Has anyone executed a DOV to a Limited Company and answered these questions?
I’d be interested to know what the forum thinks.

Richard Bishop

A DoV can be used by a beneficiary under a will to redirect an inheritance to a limited company. Ian Partington is correct.

The consequence is that Mr Brown is making a gift in the real world but for IHT and CGT purposes it is the deceased who is treated as having left the property to the limited company, not Mr Brown.

CGT in principle does not arise (TCGA 1992 s 62(6)(a)).
The IHT consequences are those of the deceased’s estate (IHTA 1984 s 142).
SDLT does not arise (FA 2003 s 49; Sch 3 paras 3A & 4 and s53(4)).

No doubt an accountant can comment on the accountancy issues but I am aware that gifts to a company may be characterised as a capital contribution.

There is no liability to (or indeed from) the company.

One of the conditions for application of IHTA 1984 s 142 is that the DoV is made for no consideration in money or money’s worth (other than in exchange for another DoV/disclaimer being executed).

Malcolm Finney

1 SDLT. None. No consideration.

2 CGT. Company acquires at market value either on date of death or date of variation depending on whether reading back applies. Donor’s treatment is simarly dependent.

3 Corporation Tax. Non-taxable receipt. Not income, or capital sum for disposal of asset, or loan relationship credit etc. HMRC may scrutinise but isfamiliar with the concept of contributed capital, particularly by parent companies and in relation to non-UK incorporated companies. Donor does not get addition to base cost of any shares owned in company.

4 Company law. Credit to reserve. Presumably distributable as is or can be made so by appropriate procedure.

  1. Tax on subsequent distribution. Depends on whether recipient is corporate or not and resident or not but will be income in nature (regardless of derivation from "capital " receipt) unless company in liquidation when adverse base cost issue (see 3) may matter. Seems to be a major potential downside of the strategy if the asset’s destination within the company is not expected to be indefinite or permanent. A buyer of its shares may factor into offer price a discount on that ground.

None of this to be taken as indicating it is a good idea without exhaustive prior analysis of route and any alternatives.

Jack Harper

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Thanks for the comments.

Richard Bishop