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September 4, 2013
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Assets of the Company - Lifting the Corporate Veil? Prest v Petrodel Resources Ltd

In the recent case of Prest v Petrodel Resources Ltd the Supreme Court was asked to decide whether The Family Division of the High Court had authority to order companies to dispose of assets to an individual as part of a divorce order.

Companies, solely owned by the husband in the divorce case, appealed against the Family Division's order for them to transfer properties worth £17.5m to the wife in the divorce case.

In the Supreme Court Lord Sumption said that there were only three ways in which the properties could be made available in relation to the divorce order

- The corporate veil could be lifted/pierced;  it was thought this could only happen if evasion was evident

- If a power in the Matrimonial Causes Act could be enacted; this power could only be enacted if the Husband was entitled to the assets of the company, which the Court held he wasn't

- If the properties held by the company were only done so as nominee, with beneficial ownership resting with the husband

The Court held that some of the properties were held beneficially by the husband because they had been acquired for nominal value or directly from the husband.  Therefore the properties demonstrating this pattern could be transferred to the wife by the Family Division Court Order.

Whilst the case is concerned with divorce law, the case raises the need for robust consideration in relation to tax analysis where clients have interests in corporate entities.

When providing tax advice to clients regarding business structures, it should be borne in mind that there could be circumstances where property which on the face of it is owned by the company (and therefore afforded the protection of limited liability within the ringfencing of the company) is in fact the property of the shareholder.

A number of areas of tax considerations may also be affected, including:

- Annual charge for high value residential property

- Entrepreneurs relief for capital gains tax (CGT)

- Business property relief (BPR) from inheritance tax (IHT)

- Benefit in kind (BIK) where the company owns a home which is occupied by a director/employee

- Sale of property to company at less than market value and the connected persons rules for capital gains tax

Of course the other more tax aspects of the analysis must be considered in detail as part of a process.

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