How we've helped our clients

Results:

££12,500 of tax saved annually by paying for children's schooling via a trust

↓Lower tax rate achieved on a rental property by holding it via the company

££400K reduction in inheritance tax liability to date

↑Potential for further savings as investments within the FIC grow

Restructuring for tax efficiency

The situation

Parents owned a profitable trading company with a significant cash reserve which was increasing each year. They wanted to use the profits to benefit and invest in their family as tax efficiently as possible.

Challenges

The aim was to extract the profits from the company without paying any additional tax on dividends, or winding up the trading company. Risks included:

If the company continued to accumulate cash, or use that cash to invest, it may no longer be considered a trading company and any sale of the shares may not attract business asset disposal relief.

Later down the line, any gifted shares to family may be subject to inheritance tax.

When should I consider a restructure?

Restructuring for retirement

Results:

✓Business asset disposal relief was claimed so gains were taxed at 10%.

✓Tax clearance gained to mitigate income tax liabilities due to their connection.

✓The only other tax cost was stamp duty on the acquisition of shares.

The situation

Parents run a profitable pharmacy business and are looking towards retirement. Money needed to be extracted from the business to fund this but they also wanted to keep the business in the family.

The son also runs a separate business in the same industry which he was looking to expand and so the decision was made to sell the business to the son.

How to structure your family company

Our solution

We set up a Family Investment Company (FIC) using a combination of different share rights along with a bespoke shareholders agreement and Articles of Association. This meant that shares could be passed on tax efficiently to the children.

Outcome

The family pay around £15K less income tax than before the structure was set up, and have potentially saved over £600K of inheritance tax with more savings to come as the portfolio of investments in the FIC grows.

Dividends can be paid tax efficiently to the FIC and the parents were able to direct how it was used. This allowed the children's trusts to pay for school and university fees saving £12,500 tax annually compared to the parents extracting the money themselves.
Dividends received from the trading company were reinvested into rental property. Holding the property via the company meant that all of the mortgage interest was tax-deductible. The company also pays a lower tax rate on the rental income than if the parents owned it directly.

As the value of the FIC increased, anything over £1M passed into the shares owned by the children and the trust. This growth dropped out of the parents estate reducing the parents' inheritance tax liability by £400K to date.
The trading company is within business asset disposal and business property relief criteria creating potential inheritance savings of over £800K. It also reduces tax on up to £1M of gain per parent on sale of their shares by 10% (a potential of £100K saving each).

Passing down the company without triggering significant 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.

Challenges

The son did not have the personal funds available to buy the business directly.

A company purchase of own shares was considered but this would mean that the son would have to become a shareholder within the existing company before he could take over ownership from his parents.

Our solution

Commercially, it was better for the son's company to acquire the shares held by his parents by creating a group structure. Funds could be paid to the parents by way of dividends.

Outcome

The transaction was undertaken achieving the aims of the family in the most cost effective way available.

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."

"The last piece in the entrepreneurial business puzzle"

Read: why is an exit plan important?

Ring-fencing risk

The situation

A very profitable company operating in a niche market with one major customer had built up a large cash balance.

As the business operated from rented accommodation the owners felt it was the right time to use the cash to acquire their own premises.

Challenge

Holding all assets in one company operating an unpredictable trade was risky.

The aim was to extract the cash from the company without triggering tax liabilities and to create a structure which offered protection in terms of the holding of the property going forward.

Our solution

We created a new holding company and formed a group structure above the existing trading company.

Cash could then flow between companies without incurring tax liabilities which allowed the holding company to purchase the premises on behalf of the trading company.

Outcome

Tax clearances and stamp duty relief were obtained in respect of the new share structure which mirrored the structure in the existing trading company.

The required structure was established with no tax cost and the use of the cash reduced the risk that HMRC could argue that the company was no longer a trading company.

How restructuring your business can help you protect your assets