Tax efficient merger

Tax efficient merger

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Company A is owned by X and has been in business for several years. X then started up a new business based around his hobby. The new business started in November 2004. For convenience sake the new business has been included within the books of Company A as the business is not entirely dissimilar.

The new business has shown a great deal of promise and expanded quickly. X is not able to cope by himself and has found a partner, Y. They plan to trade through a Limited company and so will be setting up Company B.

X values the work he has done so far at £15000 and therefore wants £7500 from Y to cover a half share. Stock value is around £2000. There are no other assets to speak of so the remainder is effectively goodwill/development.

Y would prefer that his investment is treated as a loan in Company B. X is not concerned about the way the money is paid to him.

The suggested approach is that X buys the new business out of Company A for £15000, and sells it into Company B creating a credit loan account. Y then puts £7500 into Company B's bank account, which X can draw on to reduce his loan account. X and Y are left with loan accounts of £7500 each.

Would this approach mean that Company A would have a cgt bill of £2850 assuming 19% rate? Are there any tax implications I am missing, eg. rollover/holdover? Can anyone see a more tax efficient way to do it?
Dan

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