Asset v share purchase when purchasing a property
When it comes to purchasing a commercial property, the immediate thought is “How much is the stamp duty and what can I do to minimise it?!!”
But.. no matter how eye watering the figure may be, further considerations need to be made as paying the stamp duty upfront could mean savings now and in the future.
When purchasing a property as a standalone asset, stamp duty is a major contributing factor which could result in a 0% – 5% liability on the consideration paid. However only focusing on the initial outlay would be a mistake as there could be future tax savings to be had in terms of reducing capital gains tax on any subsequent disposal.
Alternatively you could purchase the shares in a company to enable the purchase of a property? Stamp duty still plays a part with this route but granted the rate is lower at 0.5%. However the issue with a share purchase is that you don’t know what you’re getting. Undisclosed liabilities and historical legacy issues could become your problem! Extensive research and due diligence needs to be undertaken which in turn increase the costs of acquisition. Legal fees will also be higher to ensure warranties and guarantees are documented in the Share Purchase Agreement. Tax reliefs are available for the seller of the company so there is a potential for the purchaser and their advisors to negotiate a lower price.
Generally speaking a share purchase is more of a benefit for the seller, whereas an asset purchase will often be more tax efficient for a buyer. However there are definitely exceptions to this rule and purchasing a property via either route is complex and shouldn’t be attempted without professional guidance, which is where Cowgill’s expert advice is essential.
The information was correct at time of publishing but may now be out of date.