Capital gain on sale of business

cash rich - do we need to worry about proceeds being treated as dividends?

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I have a client with a 100% owned limited company for sale with a cash pile, well in excess  of 20% of its recent turnover, asset base or expenses.   It is definitely a trading business however and the cash is a result of past trading incomes over many years and has no real business purpose. 

The potential buyer is looking at buying the shares including the cash pile, so this is not a liquidation. Do  I assume correctly I don’t need to worry about the 2016 transactions in security taar which seek to tax cash rich co’s up as dividend distributions? 

In which case is there any barrier to the whole proceeds for the share sale being treated as capital in my clients hands?  [I am assuming ER wont exist by the time this goes through, but who knows]  I have read too much this PM and I think I am getting a little muddled between liquidation vs ER vs capital treatment and as this area has changed to much in the past 5 years I am not sure if I am out of date now.

Its big enough we will get pre-sale advice in due course but looking for a general heads up at this stage, in particular so we can book some dividends this month if it help him out. 

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By The Dullard
05th Mar 2020 18:16

The TAAR only applies if there is a liquidation and the TiS reules cannot apply if there is a fundamental change in ownership

However, if I was the buyer that had to extract the cash from the company, I would be looking to discount the purchase of that cash for the tax I was going to have to pay on it. But maybe the buyer's a corporate with some purpose for the cash.

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Replying to The Dullard:
By ireallyshouldknowthisbut
05th Mar 2020 18:25

thanks, that confirms what I thought, but its one of those i don't do enough of to know it properly.

Buyer is corporate and quite frankly I think trying to leverage on buying the cash as a sweetener to the owners so as to pay a lower overall price. They aint daft, but I was concerned we might be being naive.

My client did stumble into a larger tax firm purporting to book the ER via a share for share exchange into a new co ,and then sell in new co to the new owners but it looked fraught with bear traps to me and had Gaar written all over it. Anyhow I suggested he took advice from a specialist if contemplating such a scheme. Staying well out of that one!

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