Substantial Shareholdings Exemption

Substantial Shareholdings Exemption

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The scenario I have is as follows:-

Company A is 100% subsidiary of company B. Company B has been trading for many years and the trade has consisted of various activities over the years. Company A is dormant and has been since it was incorporated in February 2011. 

A third party is now interested in purchasing a particular part of the trade within company B and would like to do so under a separate company.

My question is in order to meet the substantial shareholdings exemption rules should I incorporate a new company which would be a wholly owned subsidiary then transfer the assets of the trade from company B into the new company which would then continue to be used by the new company and then sell the shares in the new company to the third party. My understanding of this under TCGA92 Sch 7AC Para 15A is that you would look back at company B who used those assets for the purpose of the trade immediately prior to transferring them to the new company.  

Can someone clarify if I am way off the mark or if this is acceptable. 

Thanks in advance.

Replies (5)

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Portia profile image
By Portia Nina Levin
13th Nov 2015 17:44

I think you are right. What you are saying sounds vaguely familiar, but I have not been able to look it up.

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By Ruddles
13th Nov 2015 19:18

Why the new sub?

Why can't you just transfer the part trade to A and dispose of A?

But in any event, watch out for exit charges.

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Portia profile image
By Portia Nina Levin
14th Nov 2015 10:40

@ Ruddles

The reason for the new company will be because the purchaser wants a new "clean" company. Keeping the subsidiary also means that B remains a member of a (trading) group, should the exercise want to be repeated.

Any exit charge will accrue to B following the FA 2011 changes with the effect that B's gain on the shares in Newsub will be increased by the gain on any chargeable assets that were transferred to Newsub, but that gain will be covered by SSE.

See http://www.taxation.co.uk/taxation/Articles/2015/03/10/332785/ignorance-...

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By Ruddles
14th Nov 2015 10:54

Portia

Agreed on the points about retaining A. And chargeable gains. But what about intangibles? Strikes me that on a transfer of part of a trade, that is more likely to be an issue than transfer of capital gains assets. (But we don't know what "many years" means in this case.)

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Portia profile image
By Portia Nina Levin
14th Nov 2015 10:52

Point taken. I had rather assumed from the focus of the question that any intangibles/goodwill was old.

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