Limited Company as a Beneficiary

About a year ago a question was posed as to whether a limited company could be a beneficiary in the context of a deed of variation, with the replies being in the affirmative.

On a similar point, if X dies leaving his property (half share) into a discretionary trust presumably the trustees could gift the property to New Co Ltd. The advantage being that the intended beneficiary would prefer the property to be held under a limited company structure than personally. (If he receives personally, then he would need to sell to the limited company which would trigger stamp duty.)

To complicate matters the beneficiary owns half the property personally, and therefore if the trustees gift their share in the property to New Co Ltd, the legal title would be with beneficiary but as to one half for himself and one half for New Co Ltd. Is this doable, or is there something obvious that I am missing?

Haroon Rashid
I Will Solicitors Ltd

Unless New Co Ltd is an object of the discretionary trust, I wonder what powers the trustees might have to “gift” the property to it.

If the trustees are able to validly assign their interest in the property to the company, I can see no legal reason why the surviving trustee of land cannot hold upon trust for themselves and the company.

There may, of course, be tax complications, mindful amongst other matters that the company is probably a close company.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Thanks for this @paul . The class of beneficiaries is wide enough to include New Co Ltd, (with two beneficiaries having the power to add to the class of beneficiaries), and therefore the ‘assignment’ should be possible. As it is a full discretionary trust Will, and we are within two years of death, then it is as if the testator had given the property direct to the limited company. I have never come across this before, and it would be interesting to know if other practitioners have done so?

Often a limited company is seen as a useful vehicle from which to use to own a company, so why leave property to a beneficiary when you can leave to either an existing company, or a new co, with the beneficiary as the shareholder.

Haroon Rashid
I Will Solicitors Ltd

Hi Haroon

You cannot gift to a Limited Company - any gift becomes a loan on the balance sheet.
If you ‘gift’ a property to a Ltd and then forgive the loan you will probably incur a corporation tax charge as the balance sheet would show a “+” and no loan to offset the profit.
I’d suggest there will be SDLT to pay on the transfer as HMRC will consider this to be at market value and CGT.

All cases are different, I see 20 clients a year who have done this incorrectly :0)



I do not understand Richard’s response. A gift can be made to a limited company. Any such gift would not become a loan on the balance sheet and no subsequent forgiveness can occur. A gift is a gift.

The CGT and SDLT issues are separate matters.

Malcolm Finney

Hi All,

I’ve had two emails about ‘you can’t gift’ - to clarify any property moved/transferred/gifted MUST be legally sold. It has to physically be bought.

You cannot gift property or cash to a company, it becomes a directors loan.
Or sits in the directors loan account or loan account.

S.53 FA 2003 which deems SDLT is payable as any property is deemed to be transferred at market value. Connected parties.
Same as above CGT is payable - deemed to be transferred at market value.

Therefore if you transfer cash or property into the company it is shown in the directors loan account as a liability to the company.

If you forgive the loan it sits in the profit reserve account and may be liable to tax.


Mr.Smith transfers £500,000 property to Smith Limited. [It could be his wife, a non-director]

  • The property is shown as a loan in the directors loan account or loan account.
  • SDLT would be payable. Connected parties. Unlikely they are not connected.
  • CGT if applicable.
  • If Mr. Smith then forgives the loan - this would be absolute - the £500,000 would be shown in the profits reserve account on the balance sheet.
  • You can’t gift, cash or property to a Ltd.
  • Cash becomes a loan. Usually a Directors loan.
  • Property must be legally sold at market value.

Hope the above clarifies my ‘can’t gift’ stuff comment.

Richard Bishop

The view expressed by Richard Bishop seems somewhat at odds with that of Osborne Clarke:

Whilst the Privy Council case referred to is not binding in England & Wales, unless special circumstances apply I understand the English court will usually take note of PC decisions.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

  1. There is no reason in law why a gift cannot be made to a limited company. A”gift” would constitute a transaction under which the recipient of the gift gives no consideration in any form.

  2. In the area of inheritance it is by no means unusual for a Deed of Variation to be executed under which the original receiving beneficiary re-directs the property inherited to a limited company.

  3. The SDLT point you mention is a separate point.

FA 2003 s53 does not preclude a gift to a limited company; it merely provides that despite any lack of consideration (in which case normally no SDLT charge arises) consideration will be treated as having been given (equal to the property’s market value) if the giver and received are “connected” thus giving rise to an SDLT charge.

  1. TCGA 1992 also imputes market value where “connected” patties are involved.

However, in short, it is not correct to state that a gift cannot be made to a limited company.

The gifting of the property to the company does not give rise to a loan to the company. The company owes nothing to the giver of the property, by definition of the fact it is a gift.

The treatment of an injection of cash into a company, as you mention, would depend upon the terms of the contribution. If it’s a gift then no loan occurs; if the cash is injected as a loan to the company then, of course, the company would have incurred a borrowing.

Malcolm Finney

Hi Malcolm

Any property transferred to a Limited company MUST be sold at market value. This is Accounting 101.

Richard Bishop

Accounting standards are our servants not our masters. They frequently reflect the reality and substance (as perceived by accountants) regardless of the strict legal position. See accounting treatment of the leasing of chattels (thankfully not extended in the end to leases of land, as once proposed) and retention of title clauses. Accounting standards cannot override the true and proper legal analysis of a gift to a company by turning it into some kind of sale with loan obligation or indeed any other contrived pastiche legal relationship. Those who devise accounting standards are free to force accountants to present the arrangement in financial statements in whatever manner is permissible under the aegis of the theology (necromancy?) of those who devise such edicts and their inculcation and imposition.

It is true that HMRC has insinuated GAAP into the fabric of the UK corporate tax base structure but it:

(a) does so with multiple disclaimers of applicability of those aspects of the rules which it dislikes or regards as unfavourable to its objectives;
(b) has secured the introduction of entirely separate codes (loan relationships, corporate intangibles, financial instruments etc etc) which tax taxpayers on quasi debits and credits conceptually far removed from accounting standards or even double entry.

The much-vaunted “simple” approach to taxing corporates on their accounting profits is not welcomed by HMRC unless it suits them (like a species of bookkeeping Ramsay principle) and is regarded by some tax technical sages with horror as being founded upon the mystical ruminations of strange boffins who, as once in my own case, happen to inhabit not just the same building but even the same business partnership. We would shrink at structuring a tax base linked to tea leaves or the logistical pattern of London Underground trains and what have accounting standards ever done for Reality (see numerous scandals and consequent auditing “failures”)?

Such standards will undoubtedly play a part in determining what profits derived from the company’s accepting the gift are distributable (as they have done for decades as an adjunct to black letter company law on the matter) but I cannot see how they can make a gift into a sale at market value in law. Accountants are free to present it as such or indeed as anything even more bizarre if they perceive it as helping the varied users of financial statements.

(I say this as one who formally qualified and practised–at discrete separate times-- as a solicitor and chartered accountant at partner level, until I was liberated by anno domini).

Jack Harper

1 Like

Hi Both

Thanks for the comments.

I can only go by the general rule a property must be sold. We have many B2L investors who cannot gift the property to a Ltd.

This is a common issue for property investors. Leaving out the issue of incorporation relief.

Not to muddy the waters further if cash is gifted no PET. Immediate charge for inheritance tax.

I would agree a DOV is giftable. I reserve judgement on property. Cash yes can be gifted, we never see it as no PET.

Richard Bishop

Leaving aside the longer-term tax and general implications of the half share of the property becoming beneficially owned by a company, the plan of first adding it as a beneficiary and the trustees then making a distribution to it seems perfectly feasible to me. The 2 year reading back is only for IHT so there will be a CGT disposal but there may be no trust gain by computation. Contributing an asset to a company always raises the question of a possible corporation taxable receipt where this is not clearly by way of a loan or subscription for shares; but a genuine gift to a company is not income or the receipt of a capital sum which would constitute consideration for the disposal of a chargeable asset. This kind of capital contribution is more common with non-UK incorporated companies but not wholly unfamiliar to HMRC. I can’t see how a genuine gift, if that is the true and proper legal analysis, can cause the trustees’ transfer to be liable to SDLT. The company acquires at market value base cost for CT on CGs but looking ahead it may be creating a distributable reserve which can only emerge again from the corporate structure in income form, unless as capital in a winding-up distribution.

Jack Harper

A gift to a company (whether of cash or anything else) is not a PET for IHT. This is why the DOV may indeed be attractive in theory (as well as being exempt from SDLT and giving rise to no gain for CGT). That is if putting the property into a company, by this route or any other, is otherwise and overall and long-term a reasonably good idea not risking repentance at leisure. My mission was to flag to forum members that this plan is not at all irredeemably barmy but is far from being a no-brainer.

Jack Harper

I fail to understand Richard Bishop’s comments, namely, “I can only go by the general rule a property must be sold”, “I would agree a DOV is giftable” and “we never see it as no PET”.

There are also two separate threads running on the Forum in relation to gifts to limited companies which Richard Bishop I think seems to be totally confusing, one of which involves use of a DoV and other (namely this one) involving a discretionary trust.

In view of all the responses posted I would ask if Richard Bishop now accepts that gifts (including property) to a limited company are possible and that there is accordingly no general rule as he states that “I can only go by the general rule a property must be sold”.

Malcolm Finney

1 Like

Hi Jack

Thanks for the input. I think you make some good points.

Our view on advising clients is bricks and mortar must be sold. SDLT CGT payable etc. Subject to reliefs. Not a gift.

That’s our opinion. I fully appreciate others may interpret the relevant legislation differently.

As with all law opinions will defer. I thank you for putting your points across in a professional manner. Unlike some on this forum.

Richard Bishop

On a slightly different angle, company B (limited by guarantee) runs a sports club, and for historic reasons company A (with share capital) owns the land on which the club operates.

A sold some land for development and gave B some of the proceeds, partly to pay off a loan taken out for improvements, partly to pay for further improvements, and partly to plug a revenue shortfall. It is also intended to transfer the remaining land and cash to B, and wind up A, to simplify the structure, and the land does not have a capital gain after indexation.

Is it correct also to say that company A can make these gifts to B (the cash transfers made so far were intended to be gifts and not repayable), without any tax charge arising in A or B, with the cash and assets all being treated as a capital contribution, and added to reserve, as referred to in this thread?

Would this also apply to the money used to make the revenue shortfall?

Simon Northcott

The precise tax status of A and B is not clear and could well be critical e.g. trading or not, charitable or not. Apparently some cash has already been handed over which possibly limits to some degree the freedom of the parties to agree about what was and is going on (if that matters).

HMRC’s position on “voluntary receipts” is set out in BIM 41801 and 41810. If B is not trading there can be no trading receipt. How the revenue shortfall arose is not clear. If B is not trading the question arises whether the receipt to B is income or capital in nature and, if income, whether it is taxable miscellanous income, see BIM 100101. That is what we dinosaurs used to call Schedule D Case VI. It does not seem, if it is capital, that B is making a capital sum disposal of a chargeable asset for corporation tax on chargeable gains.

HMRC Manuals are informative and, in general, reliably accurate in their analysis and here do not seem tendentious in advancing an HMRC position which might be controversial. They may inevitably disguise the prospective intensity of the enthusiasm with which HMRC may wish to investigate any given underlying facts and tax consequences. The latter may not always be symmetrical but HMRC are viscerally attuned to the pragmatic (albeit entirely heretical) approach that a receipt is less likely to be taxable if the payer is not obtaining a deduction (and this seems unlikely here).

Should the parties enter into some contemporaneous narrative about the purpose of the payment and asset transfer? They cannot preclude thereby a successful challenge of their chosen designation but contemporaneity can attract more weight. Of course it can also be a hindrance by inhibiting a later change of tack. In BIM 40451 there is a hint about “undifferentiated receipts”. The context is different but analogous (subsidies), and very much tied to trading status, but the hint is that, if the parties do not agree about what is happening and document it at the time or shortly afterwards, HMRC may have a freer hand to advance an analysis favouring themselves. What A and B might actually say is for bespoke drafting which scrupulously reflects reality rather than wishful thinking; and care is needed with past events to refrain from asserting or implying that something was agreed at the time rather than rationalised later, though the latter is beyond criticism if unfeigned.

A company like A must have power to make gifts and it must not be breach of duty by its directors. If it is solvent before and after, creditor preference can be ignored but A’s terminal demise is here stated to be imminently planned. Otherwise it is usually these days a matter only of following the appropriate corporate procedure on the part of the Board and shareholders of A so that they, and those of B, can rely on the gift not being subsequently vitiated by anyone with a cause of action to secure that advantage.

Jack Harper