H&W in trading partnership.
About to transfer the business into a pre existing trading company, the g/w of the partnership business is valued at £1m.
The company is owned 52% by H&W and 48% between son and daughter who work in the business.
Could HMRC argue s29 value shifting?
If so, could the gains be held over?
(The g/w will be gifted upon incorporation and that part will be h/o.)
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Replies (5)
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I can't see it...
... you could legitimately gift 48% of the business to the son and daughter (holding over the gain) for them to then immediately gift their share to the limited company (again holding over) and you'd end up in the same position. The same gains get realised and held-over and the same amount of tax doesn't get paid. Unless you're suggesting that a hold-over election is a value shift?
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The issue is that the company we want to use already trades (similar trade). The idea is that the parents take this step as a partial succession plan. Reducing their partnership interest by dilution of the shareholding.
We dont want the complication of introducing partners into the partnership for say 1 day only for the four partners to gift their share into the company. This would seem a bit of a waste of time.
Reading s29, it seems to catch this. I have never seen HMRC take this point on but possibly they could. If they did I would be unsure that this "deemed" disposal of shares would be within the gift relief provisions.
I wasn't suggesting you actually went a more convoluted route...
... I was just contrasting with it.
When you say "reading S.29", do you mean S.29(2), specifically? If so, I can't see how control is being exercised such that value shifts from any one party's shares to any other's. All parties are participating in the gift of the business in proportion to their existing shareholdings.
Where value is passing, is in the gift itself, and that is a matter for S.18, relieved by S.165. S.29 deems a disposal. You already have an actual disposal. There's no shift in the values of the shares. They're all proportionately augmented.
In the future if you allow the value of the parent's shares to diminish by the issuing of further shares, then that's a value shift, but you shouldn't need to do that, as you can either gift shares or have the company repurchase them
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I wasn't meaning to be blunt with my comments, apologies for that.
We have a 50 : 50 partnership. both partners are transferring their interest in the g/w into a company, this is a disposal by them. They can holdover the gain if they wish.
The s29(2) provision creates a deemed disposal where a controlling shareholder passes value out of his shareholding. This then is a deemed disposal of those shares for CGT purposes. This has nothing to do with the actual gift of the goodwill.
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In the future if you allow the value of the parent's shares to diminish by the issuing of further shares, then that's a value shift, but you shouldn't need to do that, as you can either gift shares or have the company repurchase them
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I am not sure that this situation would be a s29 problem as there is no diminishing of the shares happening in that example. What you described is an actual disposal of the shares.