Should owner surrender losses to the subsidiary?
My client Charlie acquired in a new limited company a commercial property for £1m and spent some £1.5m converting it into eight flats with the intention to let them to the public. However to maximise finance opportunities Charlie’s financial adviser suggested a sale of the property at market value be made to a wholly owned subsidiary of the company. The motive for the transaction is therefore purely commercial.
The company therefore has two options: (a) grant a 999-year lease to the subsidiary company which will then let the flats on AST tenancies and will pay nominal ground rent (£200 a year) to the holding company; or (b) sell the freehold to the subsidiary in which case the holding company remains with no assets generating income.
In the course of conversion the holding company...