Some Accountants have clients who are looking to demerge a business using Section 110 of the Insolvency Act 1986.
Example scenarios
The reason for doing this includes:
- To separate 2 or more businesses (e.g. a trading business and property business) in the same company if one business is to be sold and the other retained
- To separate connected companies – e.g. to remove a loss making part of the business
- To redistribute shares – e.g. where two directors have shares in both Company A and Company B; and they want one director to just have shares in Company A and the other just in Company B
There are structures which may entirely mitigate corporation tax, income tax, capital gains tax, stamp duty or stamp duty land tax on the reconstruction.
As with reinstating a dissolved company to realise assets, an C would do the MVL aspect with a solicitor doing the necessary legals.
The benefits
The main reasons for using this process are:
• the opportunity to restructure businesses and shareholdings tax free
• allowing selling shareholders to benefit from Entrepreneurs’ Relief (cgt @ 10%) on a sale
• HMRC clearance available for much of the tax restructuring.
You might also be interested in
Replies (2)
Please login or register to join the discussion.
In most of these scenarios
A capital reduction demerger works just as well, if not better, and saves an absolute fortune in liquidator's fees.
fees, glorious fees
Agree on the fees. Top 10 firms often over £50k, big 4, who knows! Having dealt at the edge of a few of these, I would also mention that there can be VAT issues when assets start getting moved round etc and the need for VAT groups or other planning. If not considered, the VAT can be a real headache.