My daughter and I are the only shareholders of a private limited company registered in England. In 2007, the company bought a property through funds loaned by the director shareholders. The loan is a registered charge against the company at the Land Registry. We want to liquidate the company to enable my daughter to purchase a new property and use the funds released as deposit towards a mortgage. Would there be a benefit in first transferring the property to the shareholders, or would it be better just for the company to sell the property?

Arthur Weller replies. 

Whether the company first transfers the property to the shareholders, or the company sells the property, the company will have a capital gains liability if the property is worth more now than when originally acquired. If the company transfers the property to the shareholders they will have to pay stamp duty land tax, unless the distribution is worded in a way that there is no cash alternative. If the company transfers the property to the shareholders they will have to pay dividends tax on the receipt of the property (i.e. it is a ‘dividend in specie’), based on the current market value of the property. If the company sells the property to an outsider, and is left with cash in the bank, the shareholders will want to extract the remaining money from the company, after repaying the directors’ loans, and paying the corporation tax. Probably the best way to do this is to do a formal liquidation, followed by a capital distribution to the shareholders.