I have been struggling on how to advise my client as I am unsure if the following is actually allowed.....
The director (Mr B) of a property development company - which I will call 'A Ltd.' (whose accounts I am working on), has made an agreement with a construction company - which I will call 'C Ltd.' Here's how it goes....
A Ltd. and C Ltd. have decided to buy a property which they are developing in order to sell for a profit. However, when it came to financing this property, the two companies could not get a mortgage, and so, Mr B applied successfully on behalf of the two companies. The property is therefore in his name only (with no reference to the two companies).
Mr B assures me that there is a contract/agreement between A Ltd. and C Ltd.
The two companies have paid equally for the costs of developing the property and now it is ready to sell - for a profit of around £250,000 (split 50:50), which the two companies will be receiving - none to Mr B personally.
Can I include this property into the accounts as an asset, (or purchase), and include the costs of developing it and then include the profits next year (when it is sold) as if it is a disposal (or sale)?
If the mortgage etc is in the director's own name, does this really mean that he has a CGT, or Income tax calculation to be added to his personal tax return?
I have been arguing with my client as I believe that HMRC may see this as personal purchase as the property, mortgage etc is in Mr B's name and not the companies' names. He however, insists that it is not a personal purchase/profit.
I would appreciate any help with this problem.
alison
The director (Mr B) of a property development company - which I will call 'A Ltd.' (whose accounts I am working on), has made an agreement with a construction company - which I will call 'C Ltd.' Here's how it goes....
A Ltd. and C Ltd. have decided to buy a property which they are developing in order to sell for a profit. However, when it came to financing this property, the two companies could not get a mortgage, and so, Mr B applied successfully on behalf of the two companies. The property is therefore in his name only (with no reference to the two companies).
Mr B assures me that there is a contract/agreement between A Ltd. and C Ltd.
The two companies have paid equally for the costs of developing the property and now it is ready to sell - for a profit of around £250,000 (split 50:50), which the two companies will be receiving - none to Mr B personally.
Can I include this property into the accounts as an asset, (or purchase), and include the costs of developing it and then include the profits next year (when it is sold) as if it is a disposal (or sale)?
If the mortgage etc is in the director's own name, does this really mean that he has a CGT, or Income tax calculation to be added to his personal tax return?
I have been arguing with my client as I believe that HMRC may see this as personal purchase as the property, mortgage etc is in Mr B's name and not the companies' names. He however, insists that it is not a personal purchase/profit.
I would appreciate any help with this problem.
alison