My client is a company whose trade is manufacturing kitchens and retailing kitchen appliances. The company no longer needs its original site where the business began in the 1980s and the directors are considering giving it to a charity which they know is looking for additional space. They are wondering what Corporation Tax relief might be available.
There is a CT (Corporation Tax) relief for giving away assets in Chapter 3 of Part 6 CTA 2010. If the gift satisfies various conditions, then the company will get a “relievable amount” which may be relieved in the same way as would a donation of money to the charity for that amount, that is it may then be used to reduce the PCTCT (profits chargeable to corporation tax) for the period in which the disposal of the asset takes place.
Not every asset can qualify for this relief; it must be a qualifying investment (S.204 CTA 2010). Fortunately, the freehold of a property held as a fixed asset does fall into a qualifying category.
The relievable amount is calculated by starting with the market value of the asset and adding to that any incidental costs of the disposal incurred by the company. (These are broadly as they are for a capital gain computation). The figure must then be reduced by any benefits, if any, received by the company which result from making the disposal (S.206 CTA 2010).
Once the charity has given the company a certificate identifying what it has obtained from the company and the date of disposal (S.213 CTA 2010), the company may make a claim for the relievable amount. Provided that the company’s PCTCT for the period are at least equal to the relievable amount, the company will save CT of 19% of that amount. That relief may be forfeited if there is a disqualifying event (broadly where the company gets some benefit from the property without paying full market rate) at any time in the six years beginning with the end of the CT600 period in which the company gives the property to the charity. Although, if the company or anyone connected to the company were to benefit at any time because of arrangements linked to the donation, that might be sufficient to taint the donation under Part 21C of CTA 2010, precluding the relief or precipitating its withdrawal.
The other encouragement for the company to gift the property to the charity is S.257 TCGA 1992 which treats the company as disposing of the site for consideration that would give it neither a gain nor a loss, rather than the deemed market value consideration normally required by S.17 TCGA 1992 for calculating gains on gifts. If a close company parts with something for less than its full worth, it is also necessary to consider if a charge to IHT will apply to the participators under S.94 IHTA 1984. However, if the site is being disposed of to the charity unconditionally and the company does not continue to occupy it afterwards, the exemption for transfers to charities at S.23 IHTA 1984 will prevent that charge from being a problem.
In association with Croner Taxwise
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