LAQC / Rental Trusts - selling LAQC shares to a Rental Trust ?

[Bluekiwi]

When LAQC's stop being effective for me for tax reasons.
Say I now have Trading Trust profits that I want to offset my rental property losses against.

I could perhaps start buying rental properties into a Rental Trust instead of the LAQC's.

But can I sell the LAQC shares (or even a percentage of) to the Rental Trust and then any capital again on the properties are captured under the trust and dont need to be gifted.

Is this how it works ?

[orbital]

Incorrect.
The shares of the LAQC have to be sold/transferred at market value, not a arbitary value which a historical one could be ..this market value could be the value of the properties it holds by registered value or similar. So in effect the capital gain has to be gifted, legally you cannot get around that.

You want a low valuation so if you say to the valuer that you want a value for a trust rather than for applying for a loan (where you want the value maximised) they "may" come back with a lower value

[Dean@Massiveaction]

Hi Blue. You change the shareholding from you to your trust. No gifting involved. Ensure you set yourself up correctly at the start and it is straight forward. There are some IRD risks, get professional advice so you do it correctly.

[orbital]

Hi Blue. You change the shareholding from you to your trust. No gifting involved. Ensure you set yourself up correctly at the start and it is straight forward. There are some IRD risks, get professional advice so you do it correctly.

This is fine if as you say you do it at the start, there has been no capital gain, but later on if he decides to do and there has been capital gain, the associated parties rules apply.

[Dean@Massiveaction]

There's still no gifting involved regardless Orbital. The trust BUYS the shares.

[CJ]

There's still no gifting involved regardless Orbital. The trust BUYS the shares.

but the trust would need cash to do so. If the trust has no cash, then there can be a sale and loan back. the loan is then gifted.

You are both right.

[edit: normally the trust would have no money unless it had already been gifted in, or it had profits from other investments etc which were probably gifted in)

[orbital]

There's still no gifting involved regardless Orbital. The trust BUYS the shares.

In most associated parties cases like this there is no cash changing hands, its by way of loan, the loan is paid back by way of gift.

[Xav]

But can I sell the LAQC shares (or even a percentage of) to the Rental Trust and then any capital again on the properties are captured under the trust and dont need to be gifted.

Is this how it works ?

I think what you are asking is whether any capital gain after the transfer of shares will need to be gifted. This hasn't been answered yet and the answer is no.

The shares need to be valued at the date of transfer and if the trust is not going to pay for them then you will need a loan with a gifting program. The Loss Accumulating part of the elction would normally be removed (the company presumably now making a profit) and future profit is passed through to the trust. I think you already know all that.

After the transfer, any increase in the value of the properties will increase the value of the shares of the company, but as the trust has already purchased them this does not result in any further gifting.

[Bluekiwi]

I think what you are asking is whether any capital gain after the transfer of shares will need to be gifted. This hasn't been answered yet and the answer is no.

The shares need to be valued at the date of transfer and if the trust is not going to pay for them then you will need a loan with a gifting program. The Loss Accumulating part of the elction would normally be removed (the company presumably now making a profit) and future profit is passed through to the trust. I think you already know all that.

After the transfer, any increase in the value of the properties will increase the value of the shares of the company, but as the trust has already purchased them this does not result in any further gifting.

Brilliant, thankyou Xav

[JohnL]

I know this practice is what one of the structure 'specialist' had reservations about and why he doesn't generally like LAQCs but he seems a lone voice in terms of the potential risk with the IRD. He is concerned that the IRD could start taking issue with the practice, but as far as I know, they never have (yet!!!).

Perhaps the fact you are transferring the shareholding because you want greater security in protecting your assets, rather than minimising your taxes is the better reason for doing it.

John

[Dean@Massiveaction]

Agree John. Most specialists advise that IRD could treat it as tax avoidance so any written "intent" down this line must be avoided.