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Entrepreners Relief linked disposal to trigger

Entrepreners Relief linked disposal to trigger

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Scenario is:

Mrs A owns comany B and asset C which is used by B Ltd.

She is contacting to sell asset C and half of the undertaking of B limited.

She will then continue to operate the remaining undertaking of B Limited.

Sale proceeds from the part share of B limiteds undertaking are not material, but the proceeds for asset C are, and we wish to secure entrepreners relief.

We can only obtain entrepreners relief if there s a linked disposal if shares in B Limited.

Choices seem to be:

1 - transfer the retained undertakings of B limited to NewCo, and close B down. Trade via NewCo.

2 - Mrs A sells shares in B Limited to a holding company HoldCo, and continues to trade B Limited with an indirect shareholding.

2 is infinitely more preferable as it avoids the hassle factor of closing B Limited down.

However, to me it seems to easy!

Any thoughts?

Replies (7)

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By MBK
19th Apr 2012 14:37

I'm pretty certain ...

..but please check the technical detail, that a simple transfer of some of her shareholding in B Ltd to Mr A will do the trick. My understanding is that all that there has to be is a partial withdrawal - so any share transfer counts.

If there isn't a Mr A then a transfer to another relative might work just as well - any gain should be capable of being held over.

A lot cheaper than forming new companies etc.

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By Steve Kesby
19th Apr 2012 15:30

I assume that...
... Mrs A hasn't been making a market value charge to B Ltd for the use of asset C?

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By girlofwight
19th Apr 2012 16:18

@Steve

No, she hasn't.  Untainted in that regard.

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By girlofwight
19th Apr 2012 16:20

@MBK

Alas no Mr A on the scene.  Due to regulatory issues Mrs A needs to continue to own the business, hence the suggestion of indirect ownership of B ltd via HoldCo (which would be acceptable on a regulatory basis)

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By kenmoody
19th Apr 2012 16:23

Personally ...

... if there are substantial sums involved and you are not sure I'd suggest paying for advice to cover yourself. For a short peice of legislation ER is very tricky.

As you surmise there has to be a material disposal of shares in company B.

The simplest solution may be to transfer the retained undertaking out of B and get the purchaser to buy the shares in B, but that depends on whether the transfer creates tax issues and of course the purchaser may wish to amortise goodwill for tax which they can't if they buy the shares.

Dunno about a transfer to spouse. Although on a no gain/no loss basis it is still a disposal so I suppose that might work. I'm not sure how it can be said though that the disposal of shares in B is part of the withdrawal from the business since the two are not linked. HMRC draws upon Clark v Mayo - material disposal of business assets and the associated disposal must be part and parcel of the same event. There is a partial withdrawal but this is linked with the sale of part of the business of B, not with the disposal of shares. See the recent ICAEW release re ER practical points following discussions with HMRC.

Possibly a solution would be to liquidate the company and for the liquidator to sell part of the undertaking of B to the purchaser on the agreed terms (this would be a voluntary liquidation so the shareholders retain some control over the liquidator). This liquidation would create a material disposal of the shares and the remaining undertaking could be transferred to Newco or into personal ownership. C is disposed of separately to the purchaser of course.

This is putting you in the same situation as if the company had sold the whole business and the asset owned personally and then you proceeded to wind up the company. As far as I can see the conditions of s.169K are met. Condition B at s.169I(7) also seems to be met as regards the disposal of shares in B i.e. on receiving distributions from the liquidator.

Don't take my word for it though!

kmtaxconsultant.co.uk

 

 

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By pauljohnston
24th Apr 2012 07:52

Great advice Ken

That is pay a specialist for advice.  Getting it wrong could be a very expensive PI claim.

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By girlofwight
26th Apr 2012 08:52

Thank you for all the replies on here. I think we will end up closing B ltd down, taking the hit on admin, and transferring residual trade to a clean NewCo. That route probably opens up some other tax reliefs, although the admin of changing suppliers, banking etc is daunting.

All comments given are read with grateful thanks and taken in board.

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