Break up of a simple group structure

What is the process of breaking up a simple group of companies?

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An individual holds 100% of the shares in parent company (A), which in turn holds 100% of the shares in subsidiary company (B). Due to future plans for B we would like to break up the group such that the individual holds 100% of the shares in both A and B directly. B has a value of circa £500k and is a trading company. A holds property and receives rental income.

Is there a simple way to acheive this? It is essentially a reverse of a share for share exchange.

 

Replies (7)

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By johngroganjga
19th Mar 2018 19:20

Your question is tagged as tax, but tax is not mentioned in your question.

The simple mechanics of achieving what you want is for A, reserves permitting, to pay a dividend in specie (of its shareholding in B) to its shareholder.

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Replying to johngroganjga:
By Ruddles
19th Mar 2018 19:41

And if there are insufficient reserves, sell the shares in B to individual for £1

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Replying to Ruddles:
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By justtoconfirm
19th Mar 2018 20:07

Thanks Ruddles, would this sale be deemed to be at market value as to a connected party? If so, could the substantial shareholdings exemption be applied (probably subject to other conditions)?

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Replying to johngroganjga:
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By justtoconfirm
19th Mar 2018 20:02

My apologies, I got to the point thinking about this where I had so many questions I ended up not expressing myself clearly. My client wishes to achieve the ‘de-group’ but of course we need to be mindful of the tax consequences. I need to check the situation re available reserves but presumably a divided in specie will then be taxed on the individual in the same way as a cash dividend?

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By gbuckell
20th Mar 2018 11:54

With the change to the SSE rules, it should be able to claim it. However, it is the tax position of the shareholder that is of concern. To demerge in the simple manner proposed would trigger a hideous income tax charge. What is required is what I might term a proper demerger. A statutory demerger is not possible but a liquidation demerger or, probably easier, a capital reduction demerger should be possible. Both require some care to implement correctly.

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Replying to gbuckell:
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By justtoconfirm
21st Mar 2018 12:32

gbuckell - many thanks for this. I did suspect that we would need to follow a demerger route but had hoped that I might be overcomplicating the issue. Ever the optimist! I will explore further with a specialist.

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By Justin Bryant
21st Mar 2018 13:14

Yes; a capital reduction demerger (first inserting a new holdco) is usually the way to go to avoid these income tax issues and yes; you should engage a tax specialist to do that.

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