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ACCA Strategic Professional · Advanced Taxation (UK) · Taxation effects of the financial decisions made by businesses and individuals

Mei has run an unincorporated business for ten years and will incorporate it, transferring all assets including a freehold property used in the trade into a new company in exchange for shares. Which statement about the tax effects of the property transfer is correct?

Stamp duty land tax may be payable by the company on incorporation, because land is being acquired for consideration in the form of shares and the market value is treated as the consideration where parties are connected. The purchaser, the company, bears it, and it is separate from capital gains tax.

  1. AStamp duty land tax may be payable by the company on the market value of the property, even though the consideration is sharesCorrect
  2. BStamp duty land tax cannot arise because the transfer is for shares
  3. CStamp duty land tax is payable by Mei, not the company, on the property's original cost
  4. DStamp duty land tax is replaced by capital gains tax on the transfer

Explanation

A transfer of land to a company in exchange for shares is a chargeable transaction, with the market value taken as consideration when the company is connected with the transferor. The charge falls on the purchaser, the company. It is additional to, not replaced by, the capital gains tax rules.

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