A family company with two subsidiary companies predominantly involved with property investments. One subsidiary was however a trading company. 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. The latter was an issue for elderly parents who held a 58% stake and who 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. The challenge was to find a way to achieve this that suited the families wishes without triggering significant tax and ensuring that commercially the trade remaining intact within the current subsidiary.
The solution was to extract the trading subsidiary from the group by way of a capital reduction demerger so that all the shareholders held the same proportion of shares albeit in a new wholly trading group. This would then allow 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.
The steps involved the following:
Formation of a new holding company share for share to create sufficient capital in order to carry out the demerger.
Moving assets within the group on a tax neutral basis to facilitate the demerger of the trading subsidiary.
A reduction of share capital equal to the value of the trading subsidiary in exchange for the transfer of shares in that subsidiary to a newly formed standalone company, which issued shares to the same shareholders in the same proportion as they held via the holding company.
Tax clearances were obtained for corporation tax, capital gains tax, income tax and stamp duty arising from the transaction. Subsequent gifts of shares were undertaken post demerge and as a result the parents saved around £420k in potential IHT with minimal tax cost.
Very profitable company operated in a niche market with one major customer, it 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 but were nervous about having all their assets in one company operating an unpredictable trade.
Extracting the cash from the company without having to pay tax. Creating a structure which offered protection in terms of the holding of the property going forward.
Create a new holding company and form a group above the existing trading company. Cash could then flow between companies without incurring a tax liabilities to allow the holding company to purchase the trading property.
Tax clearances and stamp duty relief were obtained in respect of the new share structure which mirrored the structure in the 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.
