Tax clearances were obtained, saving the parents approx. £420K in potential inheritance tax.
The situation
A family company with two subsidiary companies mostly involved with property investments with one subsidiary acting as a trading company.
The elderly parents held a 58% stake and wanted to pass assets to their children who worked in the business.
The aim was to pass the trading side of the group to the two children while gifting away as much of the investment side to mitigate potential inheritance tax.
Challenges
The group had a value of around £4m of which investments amounted to £2.8m, making the shares held in the holding company ineligible for business asset disposal relief or business property relief.
We needed to find a solution that suited the family's aims without triggering significant tax.
We also needed to ensure that commercially the trade remained intact within the current subsidiary.
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Our solution
We extracted the trading subsidiary from the group by way of a capital reduction demerger so that all the shareholders held the same proportion of shares in a new trading group.
This allowed the parents to gift their shares to the children in the new trading group and claim CGT hold-over gift relief.
Shares held in the remaining investment group could in part be gifted into trust using available nil rate bands for IHT and holding over capital gains tax.
Outcome
Tax clearances were obtained for corporation tax, capital gains tax, income tax and stamp duty arising from the transaction.
Post demerge, shares were gifted to the children saving the parents around £420k in potential IHT with minimal tax cost.
"Saving the parents around £420k in potential IHT with minimal tax cost."
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