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Asset extraction

Asset extraction

A B & C own 1 share each in H Ltd which owns freehold property, indexed cost £350k MV £250k and 100% shares in T Ltd MV £450k which does the trading. AB&C want to sell T Ltd and retain the properties, but how do they secure minimum tax payable. Entrepreneurs relief is only available on H Ltd. How can they get the properties out of H Ltd so they can sell H Ltd to the third party ?

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29th Jun 2012 12:38

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If they are selling T Ltd and T is a wholly owned subsid. of H where the property is held, to my mind, why are they selling H and not T only?

If they sell the shares T only I would review the availability of Substantial Shareholding Exemption (which gives a 0% charge). The only issue is that there would have to be a "trading" group post-sale of T too..

Apologies if I have read Q wrongly.

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By hpyatt
lionofludesch
02nd Jul 2012 11:55

To Cparker87

cparker87 wrote:

If they are selling T Ltd and T is a wholly owned subsid. of H where the property is held, to my mind, why are they selling H and not T only?

If they sell the shares T only I would review the availability of Substantial Shareholding Exemption (which gives a 0% charge). The only issue is that there would have to be a "trading" group post-sale of T too..

Apologies if I have read Q wrongly.

In order to claim ER at 10 CGT only H Ltd qualifies. SSE would not be available as the group ceases to trade on disposal of T Ltd. Locking the profit in H Ltd means ultimate tax at 28% CGT or 25% dividend extraction.

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By BKD
29th Jun 2012 12:58

SSE

Based on the information in the question, unlikely to be available.

More info is required - distributbale reserves in H? Cost of investment in T? Timescale? Etc Etc

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By hpyatt
stepurhan
02nd Jul 2012 12:01

Reply to SSE

BKD wrote:

Based on the information in the question, unlikely to be available.

More info is required - distributbale reserves in H? Cost of investment in T? Timescale? Etc Etc

H Ltd pre disposal reserves are £250k ( based on unencumbered property MV) on dispoasl of T Ltd reserves would be £700k. Cost of investment in T Ltd £6000 (cost of subscribed shares).

Timescale : sell trade now, hold properties and rent them out until market rises to indexed cost - 2020+ ??

 

 

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29th Jun 2012 14:32

Liquidation demerger

I agree that SSE is unlikely to be available.

A possible solution is a liquidation demerger.

Set up two new companies owned by the same shareholders (in the same ratioes). Liquidate H Ltd. Transfer the property to Newco 1 and the shares in T Ltd to Newco 2. Sell Newco 2. Not quite as easy as it sounds but, subject to HMRC clearance, should work.

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By hpyatt
hiu612
02nd Jul 2012 12:04

Reply to Liquidation demerger

gbuckell wrote:

I agree that SSE is unlikely to be available.

A possible solution is a liquidation demerger.

Set up two new companies owned by the same shareholders (in the same ratioes). Liquidate H Ltd. Transfer the property to Newco 1 and the shares in T Ltd to Newco 2. Sell Newco 2. Not quite as easy as it sounds but, subject to HMRC clearance, should work.

 

Sale of T Ltd would not qualify for ER unless shares are held for 12 months.

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By BKD
29th Jun 2012 16:26

Demerger

Which is why I asked about the timescale - if the trade can be transferred to a new company, by demerger or otherwise, Entrepreneur's Relief could become available in due course.

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29th Jun 2012 16:46

Entrepreneur's relief

If a demerger is implemented, there is a good chance that entrepreneur's relief would be available immediately on the sale of Newco 2 assuming that H Ltd previously qualified.

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By hpyatt
stuart1696w
02nd Jul 2012 12:08

Reply to Entrepreneur's Relief

gbuckell wrote:

If a demerger is implemented, there is a good chance that entrepreneur's relief would be available immediately on the sale of Newco 2 assuming that H Ltd previously qualified.

 

Can you point me to any guidance on this as I would have thought Newco2 needed to be owned for 12 months by the indivuiduals.?

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02nd Jul 2012 14:38

Reconstruction

The Newco 2 shares are issued in consideration for the receipt of T Ltd shares which are distributed by H Ltd. Therefore the reconstruction provisions of s136 TCGA 1992 apply meaning that the Newco 2 shares (along with the Newco 1 shares) stand in place of the H Ltd shares. I recall HMRC issuing some guidance to confirm this treatment a few years ago although personally I never doubted in the first place (over confidence?)!

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