My wife, two sons and I are equal shareholders in an existing dormant limited company that was set up for property development but hasn’t been used yet. We were wondering if it would make sense to gift our current rental property in Brighton to the company for inheritance tax (IHT) purposes. What are the pros and cons of doing that, accepting that there would be an initial capital gains tax (CGT) and stamp duty land tax (SDLT) charge and some ongoing fees to pay? Is a limited company a sensible means of managing wealth transfer, and would the value of the shares be classed as the face value or the value of the property holding in terms of IHT? 

Arthur replies: 

You are correct that there would be an initial CGT and SDLT charge. The SDLT charge would be based on the current market value of the property, plus the 3% charge. Furthermore, you must appreciate that any rental income will now belong to the company and not to you personally. Additionally, if there is currently a mortgage on the property, it will need to be transferred to the company, or else the company will be receiving rental income without getting any tax relief for the mortgage interest being paid, and you will be paying the mortgage interest from your own pocket. Any money you want to take out of the company will be as dividends (unless you take a salary) and will be subject to dividend taxation and will be received by all four family members. The value of the shares will be very similar to the value of the property. So, half the property will effectively still be owned by you and your wife for IHT purposes. You may be better off simply gifting half the property to your two sons without involving a limited company. Assuming there is no mortgage on the property, this will not trigger any SDLT.