I would like to split a company in a tax neutral way. By this I mean without any triggering any income tax, corporation tax or capital gains tax liabilities. The company in question is not trading and has a clean balance sheet (i.e. the only asset is cash and no liabilities). There are 3 shareholders with equal shareholdings. All shares rank pari passu. The shareholders would like to become sole shareholders in their respective companies i.e. shareholder A becomes 100% shareholder in company A, shareholder B becomes 100% shareholder in company B and shareholder C becomes 100% shareholder in company C. The assets of the respective companies A, B and C would simply be the 1/3 share of the balance sheet value of the original company.
I have considered a s.110 demerger which should work (s.136 TCGA should apply) but it seems a costly process to effect the above. I don’t think s.139 will apply as the reconstruction is not of a business. However, there are no chargeable assets within the company. Is it possible to apply for clearance under s.136 in isolation?
I have two questions a) does a s.110 demerger achieve my aim and b) is there a simpler/cheaper alternative?
Thank you
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Answers
Yes - a S110 demerger can potentially achieve your aim. But it does depend upon what the assets are. If it's property investment then it is possible, but there will be SDLT charges along the way.
I'm aware that there is possibly also a route using a statutory reduction of share capital.
But there isn't a cheap or easy way. You will need specialist help.
Why do they want to turn a cash shell into three cash shells? Wouldn't they prefer to extract the cash?
Holding cash...
... isn't a business, as you note, so you don't have a scheme of reconstruction as defined in Sch 5AA, so S. 136 wouldn't apply either.
Distribute and pay income tax or liquidate and pay CGT seem to me to be the only options.
@ MBK - Don't HMRC regard a capital reduction as a transaction in securities in these circumstances?
Sorry ....
.... I missed the fact that the only asset is cash.
So S110 demerger won't work as Steve says. Interestingly, it can work if the only assets are shareholdings in other companies, even if not trading companies.
@Steve - The capital reduction route was new to me at a recent conference. Don't pretend to fully understand it, but there was no mention of an issue with the TIS legislation.