Transfer of Trade between companies

Transfer of Trade between companies

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One sole director/shareholder for some reason know only to himself decides to operate the business through a newly created company again solely owned and run by himself. There is no question of trying to avoid creditors or to evade tax.
The original company has about £100k of assets mainly stock and debtors
The trade is carrying on exactly the same way as before and the shareholder/director is going nowhere. He has not considered capital gains or any tax consequence.

If it possible for him to gift his shares in the original company to the new company and claim holdover relief , is there a simple way taxwise and accountingwise that the new company can take over the business ?

Any comment would be greatly appreciated
Thanks
Jim Smith

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By AnonymousUser
29th Mar 2007 09:24

Re TCGA92
Thanks Paul

I've had a look at TCGA92 specifically s136 and s139 and it does state that clearance is not mandatory. It seems that because of the common ownership it can be treated as a scheme of reconstruction and merger accounting can be used to effectively transfer the business assuming of course everything is as it seems

He has effectively done the transfer which is now my main problem.

Thanks for your advice

Jim

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By Paul Soper
28th Mar 2007 16:14

There must be a reason...
Even if its stupid there must be one - and an exercise like this is going to cost so there must logically be a benefit to outweigh the cost. The fact that you can't see it, or the client hasn't pointed it out doesn't mean its not there.

New co is formed and makes a share for share offer of shares that it issues for the purpose of acquiring old co which then becomes its subsidiary. I'd guess, cos I'm no accounts expert, that the pre-acquisition reserves of oldco would not be distributable (?) - if so a pretty dumb move on your client's part.

Before you do this you seek clearance under s135 (see s138) TCGA92, and the revenue refuse to give clearance because its not a bona fide commercial transaction. Hopefully at this point the client gives up. If the revenue give clearance the new shares are treated as a continuation of the original holding so there is no gain. Gift relief is not available on the gifting of shares to a company as there were too many tax avoidance schemes based on it - see the recent case of Wood v Holden for details.

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