Dispose shares to Holding Company

Dispose shares to Holding Company

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I have a rather profitable Ltd Co client, and the shareholders are considering selling their shares to a new holding company under their control. The shares would be valued at £1m, valuation would be agreed with HMRC, then the transaction would take place.

The reason for this would be to generate tax deductible goodwill, and to have a large loan account to draw down.

I've seen this happen several times in a previous firm I worked for, however am entirely conscious of the lack of a genuine commercial reason for the transaction.

Does anyone have any experience in this area - is it a fairly common procedure, do HMRC attack it, and are there any pitfalls?

Thanks

Fellowcraft

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Nichola Ross Martin
By Nichola Ross Martin
05th May 2011 13:03

Lots of pitfalls

This is a classic transaction in securities case, so don't go there. HMRC might well serve a counteration notice (if they get wind of it) and this would tax the transaction as income and not capital.

It might be possible to do something else, although with no commercial purpose you are going to struggle to obtain clearances. Happy to mentor/assist you navigate your way around reorganisations, transactions in securities, clearances etc if you want to contact me.

Virtual tax support for accountants visit: www.rossmartin.co.uk

 

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