Potential sale of Company or parts of it

Client has received an offer for property or Company

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Just wanting to make sure I am not being completely stupid....

 

I picked up a client probably 5 years ago. It is a Company but has 3 sections, being a pub, a hotel and then the Company rents land from the director which is then let out. Not sure why they decided to put everything into one Company but there you go.

 

The pub and hotel used to trade but just before covid they decided to refurb and due to covid they have not reopened since.

 

The land that is rented is let out as storage and garages etc and now gives a large income (over £1/2m) for the smallish rent paid to the Directors (£50k odd).

 

Out of the blue, the Client has received an approach from a business who initially just wanted to buy the pub and hotel. Now they have changed track slightly in that they have suggested they save stamp duty and buy the Company.

 

Initially I said to the Client just sell the property but as they would want to take the money out for themselves tax wise obviously this will more than likely be the more costly option.

 

After some thought I wondered if we could do the following:

 

1. Set up a new Company

2. The Directors stop renting the land to the existing Company (I need to check there is no formal licence in place but pretty certain there is not) and begin to rent to the new Co.

3. Assuming the tenants have no formal licences (or they cannot be transferred) then they start paying New Co.

4. Any assets relating to the rental business are sold to New Co (think cost of those was only about £100k).

5. So Old Co just has the two properties plus improvements/equipment plus probably a bank balance.

 

Can anyone see that I am missing something? It seems too easy! HMRC could I guess challenge that a business of value has moved to the New Co but if there is no licenec for the rental of the land, is there anything stopping the Directors ceasing to rent it to Old Co?

 

Tax wise, the shares are sold to the buyer. Would any entrepreneurs relief be available? The Company being sold was a trading Company although for a fair few years the rental part has outweighed the trading part but only the trading part is being sold.

 

Any advice would be welcome.....

Replies (7)

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By I'msorryIhaven'taclue
30th Nov 2022 09:56

2112 wrote:

Out of the blue, the Client has received an approach from a business who initially just wanted to buy the pub and hotel. Now they have changed track slightly in that they have suggested they save stamp duty and buy the Company.

Save stamp duty AND return a healthy £450k annual profit on the rental land for the would-be-purchaser (ostensibly, at least).

I guess this could be one for the lawyers: "what happens if your client sells his company lock, stock and barrel and then terminates the £50k contract that yields that company £450k?"

I have an inkling the tax gurus here might lean towards a share sale regardless of ER. (In which event you might want to set about stripping the £50k lease from the OldCo company now, way ahead of any sale). We'll see.

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By Mr_awol
30th Nov 2022 11:03

What is the company renting out and who owns it?

You say the company rents 'land' from the directors for £50k but lets "storage and garages" for £500k. Is that self storage in a building (in which case who owns the building/who paid for it) or do the tenants put their won storage containers on the land? The garages - who built/owns them?

I know you refer to 'assets of the rental business' which cost about £100k, so maybe any self-store facility and/or garages are included in that figure- although now I'm wondering how long ago the £100k was spent and how much the current value (rather than cost) might be, as the cost may (or may not) be misleading.

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paddle steamer
By DJKL
30th Nov 2022 11:09

Not sure as a buyer I would fancy buying the company as I would be liable for any back tax etc issues not only re the pub and hotel I am really buying but also the back trading of the company when hiring out/renting garages/storage etc.

I would also be cagey as there can be mistakes to be made for the unwary with vat when renting storage and parking. (even if no option to tax they could well be a vatable supply)

https://www.gov.uk/hmrc-internal-manuals/vat-land-and-property/vatlp17550

I would take a good look at the land storage business to see if it could be considered more a trade than an investment activity (self storage units say), personally not sure but there could certainly be an argument in there that might assist BADR.(Not ER)

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paddle steamer
By DJKL
30th Nov 2022 11:15

This older thread re self storage may be of interest-

https://www.accountingweb.co.uk/any-answers/storage-units-trading-or-ren...

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By SWAccountant
30th Nov 2022 12:38

I'm glad you didn't Rush into this.

Sorry, I'm just here to make the pun.

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Replying to SWAccountant:
paddle steamer
By DJKL
30th Nov 2022 13:00

Yep, could have made the OP unbalanced and Geddy.

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Replying to DJKL:
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By 2112
30th Nov 2022 14:57

Hey I'm just a working man but I don't like being in the limelight.....

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