Most efficient way to split property Company

Most efficient way to split property Company

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Client company has 2 shareholders and the company owns 2 properties. The shareholders wish to split the assets into 2 seperate companies and own one company/property each. We are looking to see the most efficient method to do this.

It has been suggested that the company sets up 2 wholly-owned subsidiaries and transfers a property into each. The holding company shares are then "swopped" for shares in each subsidiary? Is this okay and where do the tax liabilities arise?
William McAdam

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By AnonymousUser
07th Aug 2006 16:56

You're not going to like this
Not only will there be a degrouping charge on the subsidiaries leaving the group owning property transferred from Holdings and thus crystalizing the gains, the value of the shares transferred to the shareholders will be distributions. The holding company cannot own itself and so there is no share 'swap' as such, but in any case there is no relief of any kind. I'm not sure the proposal is lawful from a companies act point of view either.

You can't do a demerger as you need to be trading and even the s110 Insolvency Act demerger route won't work as there are not two separate businesses.

You could consider in specie dividends of the properties, which will give rise to a CGT disposal of each property and obviously an income tax liability on the value of the dividend. However, the tax credit on the dividend is probably worth slightly more than non-business taper relief even if the company is pre-April 1998. You need the reserves for this of course.

Otherwise you'd have to go down the ESC C16 / CA s652 route (you'd have to do the latter anyway unless you want to incur the costs of a liquidation)

It's a question I think of doing the numbers and see if the clients still want to go through with it.

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