When investors are selling properties

Let’s say I own some properties, and I want to sell them.  Or perhaps in fact, I own a company that owns some properties.   Do I sell the properties (i.e. do I get the company to sell the properties)?   Or do I sell the company which owns the properties?

Or maybe conversely, I am a buyer.  Will I want to buy the properties themselves?  Or will I prefer to buy the company which owns them?

What difference is it going to make?  Is it indeed going to make any difference?

Well yes, it probably will.  In fact it’s likely to make quite a bit of difference, not least when it comes to tax.

Tax advice will always need to be taken, of course.  You will need to get your accountant involved.  If you are buying you’ll need to do due diligence on the company that owns the properties, as well as on the properties themselves.   Various taxes will need to be considered.   There will be other factors to be brought into play too.  In the end an overall judgement will need to be made, and buyer and seller will need to agree.

But when it comes to tax there is one big difference between the two options.

If I sell the company, the buyer will pay Stamp Duty.  However if I sell the properties, the buyer will pay Stamp Duty Land Tax – SDLT.  Despite their similar names, the two taxes are not the same.  In fact they are very different.

Stamp Duty would be charged at 0.5% of the amount paid for the shares in the company (which, because the company may have borrowings, is likely to be rather less than the value of the properties themselves).  SDLT on the other hand would be paid on the purchase price of the properties themselves, and it may be close to 15% of the purchase price.  It’s a big difference.

Of course, if I am a seller, my immediate thought here may be, so what?  What do I care if the buyer has to pay a lot of SDLT?  That’s for them.  But if the buyer is going to make that saving (because I sell the company rather than the properties) then there may be scope to agree to a higher price, so I get the benefit of some of that saving too.  As a seller I will feel I ought to get more.

It probably needs to be said here that to buy or to sell the company, rather than just the properties, will make for a more complicated transaction.  It will involve you in all the questions that would need to be considered on a normal property sale, but also on top of that a range of other questions too.

As a buyer you’ll want to know about the company’s accounts, what contracts it has, whether it has or has ever had any employees, and a range of other things.  As a seller you’re going to have to make information about all these things available to the buyer.  You can expect too to have to give a range of warranties covering these and other matters.  The whole thing may take a little longer.

But in many cases the savings will make it worth it.

If your business needs advice and support, please contact Adrian Chaffey, a specialist Corporate Lawyer in the team at Kerseys Solicitors in Ipswich on tel:01473213311 or Kerseys Solicitors in Colchester on tel:01206584584 or email us at [email protected], alternatively you can visit our web site and click “Call Me Back” and a member of our Commercial team will be happy to contact you.