Holding Property Through a Company for Succession: A Worked Comparison

Putting an asset into a company is often suggested as a succession solution. The arithmetic shows what it costs and what it actually changes.

Owners are frequently told that holding a property through a company simplifies passing it on, because shares can be dealt with more easily than an indivisible building. That can be true and it is not free. This example compares holding a property directly against holding it through a company over a long period, so the ongoing cost can be weighed against the flexibility gained.

The situation

An owner holds a commercial building and expects it eventually to pass to four family members. They are considering transferring it into a Saudi company so that interests can be held as shares. The question is what the structure costs annually, what it changes, and over what period it is worth it. All figures are illustrative.

Assumptions (illustrative)

• Assumed value of the building: SAR 12,000,000.
• Assumed net annual income: SAR 780,000.
• Published headline Real Estate Transaction Tax rate of 5 per cent, to be confirmed with ZATCA, applied here for illustration on a transfer into the company.
• Assumed annual cost of maintaining the company: SAR 85,000 covering accounting, audit, filings and professional support.
• Assumed one off cost of establishing the structure and transferring the asset: SAR 180,000 excluding any transaction amount.
• Assumed horizon before the interests pass: 20 years.

Step 1: Cost the move into the structure

At the published headline rate of 5 per cent on SAR 12,000,000 the amount is SAR 600,000, plus SAR 180,000 of establishment and transfer costs, giving SAR 780,000 at the outset.

Putting an existing property into a company is itself a transfer with applicable amounts. How it is treated must be confirmed with ZATCA for the specific facts rather than assumed from the headline rate.

Step 2: Total the ongoing cost across the horizon

SAR 85,000 a year for 20 years is SAR 1,700,000 undiscounted, or roughly SAR 1,059,000 discounted at 5 per cent per year.

The ongoing cost dominates. A structure is not a one off decision; it is an annual expense that continues for as long as the asset is held in it.

Step 3: Express the ongoing cost against the income

SAR 85,000 against net income of SAR 780,000 is about 10.9 per cent of the income the asset produces.

The structure consumes roughly 11 per cent of the asset earnings every year. That is the honest price of the flexibility, and it is a number most owners have never calculated.

Step 4: Total the full cost of the structure over the horizon

SAR 780,000 at the outset plus approximately SAR 1,059,000 of discounted ongoing cost gives about SAR 1,839,000 in present value terms.

Against an asset worth SAR 12,000,000, the structure costs about 15.3 per cent of current value over the period. The flexibility has to be worth that.

Step 5: Compare with the cost of dividing the asset directly

If the alternative is that four family members eventually hold the building directly in shares, the direct route costs nothing annually. If they later disagree and the building must be sold, assumed sale costs of 3 per cent on a projected value would be the cost of the alternative.

The comparison is not structure cost against zero. It is structure cost against the cost and friction of the outcome the structure is meant to prevent, which has to be estimated honestly.

Step 6: Find the break even on the flexibility

If the structure prevents a forced sale that would cost an assumed 3 per cent of a projected SAR 20,000,000 value, being SAR 600,000, plus an assumed SAR 400,000 of dispute and delay costs, the benefit is SAR 1,000,000 against a structure cost of about SAR 1,839,000.

On these assumptions the structure does not pay for itself on this benefit alone. It has to be justified by something further, such as a genuine need to transfer interests gradually or an operational reason for the entity to exist.

What changes the answer

• If ongoing costs were SAR 45,000 a year rather than SAR 85,000, the discounted ongoing cost falls to about SAR 561,000 and the case improves substantially.
• If the horizon were 10 years rather than 20, the discounted ongoing cost falls to roughly SAR 656,000.
• If the company already exists and holds other assets, the marginal annual cost is far lower and the comparison changes entirely.
• If the owner intends to transfer interests gradually over many years rather than at one point, the flexibility has a value this calculation does not capture.
• If the asset were a portfolio of several properties rather than one building, the fixed annual cost is spread and the structure becomes considerably more defensible.

What the numbers tell you

• A holding structure is an annual expense, not a one off decision, and the annual line dominates.
• Express the annual cost as a percentage of the asset income, because that is the number owners react to.
• Moving an existing property into a company is itself a transfer with applicable amounts to confirm.
• A structure holding one asset rarely pays for itself; a structure holding several frequently does.
• The comparison is against the cost of the outcome you are preventing, not against zero.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works on the ownership side of a Saudi property for owners based abroad: verifying title and boundaries, assessing the building, handling registration and handover, and managing the asset afterwards. For legal and tax questions, work with a licensed adviser; Domira will tell you plainly what the property itself supports.