CTM15250 | Distributions: general: transfer of assets and liabilities by/to members
From HM Revenue & Customs · Company Taxation Manual
B and S1000 (1) G
Where a company transfers an asset to one of its members (or vice versa) G may apply. The circumstances are set out at . The amount of the distribution is:
the market value of the asset or benefit received by the member, less
the market value of any new consideration (see ) the member has given for the asset or benefit.
Similarly, if a member transfers a liability to the company, the distribution to the member is:
the amount of the liability transferred to the company, less
any new consideration the member has given for the transfer of the liability.
However, where the transfer is 'in respect of shares', B may also apply. For distributions made on or after 17 July 2012, the overlap in the scope of section 1000 (1) B and (1) G is removed by so that a distribution will only fall within S1000 (1) G if it does not fall within S1000 (1) B (or would fall within S1000 (1) B if the exclusion for the repayment of capital on the shares was disregarded) - .
For distributions made before 17 July 2012, the following were generally not distributions:
transfers of assets between group companies, and
transfers of assets between UK-resident companies not under common control .
The above exclusions were removed for distributions made on or after 17 July 2012 also by .
The question whether either B or (1) G applies should be considered whenever a company transfers an asset to a member. The employment income position should also be considered where the member is an employee or director, see .
The Noved case
The legislation in question, at the time ICTA88/S209 (2) (b) and (4), was considered by the Special Commissioners in Noved Investment Co v HMRC [2006] UKSPC 521. They found that
the transfer of assets at undervalue was capable of falling within both (what are now) B and G, and
cash transfers were also potentially within both paragraphs.
The Special Commissioners also found that paragraph G:
can apply to unilateral transactions in addition to bilateral transactions;
is not a sweep-up provision, and is complementary in certain respects to ICTA88/S209 (2) (b), now paragraph B;
can include a transfer of cash, whether by the company to a member or by a member to the company;
can apply when the transfer is only to one member among several; and
covers transfers by or to a member.
The conclusion concerning whether paragraph G is a sweep-up was expressed in rather tentative terms by the Special Comissioners, and is contradicted in intention by both the drafting papers of and its Notes on Clauses. Moreover, in the original legislation what is now paragraph G appears as FA65/SCH11/PARA1 (2), namely as a separate sub-paragraph following PARA1 (1) which listed other distribution items, suggesting a sweep-up approach. This finding is not of precedent value and appears open to doubt.
It remains the case that any overlap between the scope of what is now B and G was removed by .
Avoidance issues
G is written in terms of a transfer between a company and its members. B (see ) may be appropriate in circumstances where the transfer is between a company and an associate of a member (and in any case takes precedence for distributions in respect of shares on or after 17 July 2012). There is further discussion of this issue at .
Property values may differ markedly according to the terms of interest held. Consider the case where a company transfers a freehold interest in a property to a member in circumstances where the property is subject to a tenancy held by the member. The market value of the tenancy should be taken into account when valuing the freehold interest. In contrast, however, consider the situation where a company grants a lease on a freehold property to a member at market value and then sells the encumbered freehold interest to the member at market value. As a result of these two transactions the member will hold the unencumbered freehold interest but the value of unencumbered freehold will exceed the sum of the market values of the leasehold interest and the encumbered freehold interest. In those circumstances the value of the distribution is based on the market value of the unencumbered freehold interest.
Another company may grant a member an option to buy an asset, such as a house. The price for the house is set when the company grants the option. When the member exercises the option the price the member pays for the company’s asset may be less than the current open market value. It may be contended that the member has given the value of the option as additional consideration for the asset and that no distribution arises. However, since the member has received value from the company in excess of the new consideration given, the full amount of the benefit received by the member should be treated as a distribution by the company.
Assistance of Valuation Office
Valuation Office may need to advise on the valuation of an asset giving rise to a distribution, see .