CGT and holding company

About transfer of shares and CGT implications

Didn't find your answer?

Morning all

Scenario is this, company currently owed 90%/10% between two common law partners (not married). The plan is to setup a holding company and make the company a wholly owned subsidiary of the holding company but then make the shareholding 50/50. There will be a shareholders agreement in place in the holding company giving value to the shareholder who is disposing on 40%, future value on a sale as the shareholding will be 50/50 and so in order for it to be fair they want entitlement to some of the current value.

My concerns are if the gift of shares is made directly to the holding company there is a tax charge on the disposal of the 40% for the individual disposing of the shares even though the shareholders agreement gives a future right to value. I'm not sure the shareholders agreement would suffice to avoid the tax due.

has anyone come across any case law similar to this scenario? And do you think there would be a tax liability as I think is a potential due to the disposal?

Replies (10)

Please login or register to join the discussion.

avatar
By Accountant A
14th May 2019 10:38

Assuming that the amounts involved aren't trivial, I think your client would be best advised to take advice from someone familiar with corporate reorganisations.

Thanks (0)
Replying to Accountant A:
avatar
By luke potts
14th May 2019 11:00

Agreed they will likely take advice, not a client, just an associate. Depends on what you define as trivial I suppose, have to admit I'm unsure on the potential fees they may incur to get an opinion. Thought I would ask and see if anyone with more experience might have an idea on whether a tax charge was due.

Thanks (0)
avatar
By Tax Dragon
14th May 2019 11:30

Wilson points out that it's not the place of respondents to query the wisdom of transactions proposed in OPs.

Nevertheless, some clue as to the reasoning behind the transactions sometimes seems appropriate. For one thing, purpose and motive can be hugely significant for the tax analysis. What is this couple hoping to achieve?

And AA is right - taking advice as to a) whether the transactions achieve that objective and b) the immediate tax consequences seems a must.

Thanks (0)
Replying to Tax Dragon:
avatar
By luke potts
14th May 2019 11:41

Amongst the reasons, they are looking at another potential business purchase similar to their current one. Both shareholders are directors and work in the business full time and they feel they want to share in the future growth of the existing and new company which I can understand. Also provides them with risk management with the introduction of the holding company from this aspect.

Thanks (0)
Replying to luke potts:
avatar
By Tax Dragon
14th May 2019 11:48

Presumably they are taking advice on the purchase. The points in your OP would be covered in that process, surely.

Thanks (0)
Replying to Tax Dragon:
avatar
By luke potts
14th May 2019 12:49

They will assuming they agree on a price of course. Still early stages

Thanks (0)
Replying to luke potts:
avatar
By Tax Dragon
14th May 2019 13:08

You are an exceptionally well-informed "just an associate". You know more about this couple's intimate personal and business plans than I know about what members of my immediate family do.

Is the restructure dependent on agreeing a price? Or is this something they would do anyway, irrespective of whether the purchase goes through?

Thanks (0)
Replying to Tax Dragon:
avatar
By luke potts
14th May 2019 15:00

I guess that depends on how close you are with family lol

I suppose they may restructure anyway but to be honest I'm not sure on that or their long terms plans. They could do something else in order to split future profits I suppose without a holding company.

Thanks (0)
Replying to luke potts:
avatar
By Tax Dragon
14th May 2019 15:52

luke potts wrote:

They could do something else in order to split future profits.

I feel we're getting somewhere. They want to share income 50:50 but (for some reason we're yet to be told) keep capital 90:10. But we've also reached the limit of what they've shared with you and you are starting to suppose. There's not much point us carrying on our mutual guesswork.

I'd be interested in learning what advice they receive, if they ever tell you that. There are some tricky tax issues that they will have to navigate to get to where they want.

Thanks (0)
Replying to Tax Dragon:
avatar
By luke potts
14th May 2019 16:41

is this something within your area of expertise? If it is you can always pop me your details and I can pass them on to them. May result in some work for you perhaps assuming they proceed with any future plans

Thanks (0)