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Director Dipute - Tax Implication of Splitting the Business

I have a small Ltd company client owned by 2 director/shareholders that have been in a dispute for a number of months.  They have resolved to split the business as there are two distinct sources of income.  One of the directors (51% owner) is to form a new Ltd company and take approx 60% of the old company's income.

The other director (49% owner) is then to retain the old company with the balance of income and become sole director/shareholder.

Are there any tax implications of this transaction?

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29th Jun 2012 14:48

Depends

It depends on the size of the numbers and the way the transaction is carried out.

If assets are taken out of Oldco there is a distribution potentially subject to higher rate tax. If there are any chargeable assets or goodwill, there is a tax charge in the company if market value exceeds cost.

A possible solution is a statutory demerger whereby assets are transferred to a new company in exchange for an issue of shares to the director who is to own the new company. This is tax free if no assets liable to stamp duty land tax are being transferred.

There are a few hoops to jump through to make it work including getting HMRC clearance.

This will not work if either party has plans to sell his bit in the near future.

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