My client is questioning why we need to wait for HMRC share exchange clearance as they want to act quicker as part of their plan to move their business forward.
The facts – my client owns 90% of a trading company (let’s call it Selling Widgets Ltd) and her ex-husband the other 10%. It was 50/50 but when they split up and the company bought and purchased from Mr X most of his shares for £100k – he retained 10% of the company so that if/when it is sold in years to come he will benefit – this was all agreed with the lawyers and happened last year.
My client is now looking to grow the company/create a new group structure and has secured investment from staff members and some outside as part of the new structure that branches out away from the current business of selling widgets. They will diversify into new areas of Consulting Widgets Ltd and Making Widgets Ltd. The plan is that all three companies will be in a group called Widget Holdings Limited which will own the shares of Selling Widgets Ltd (90% as ex husband will own 10%), and then Consulting and Making will be set up as new subsidiaries.
The staff/external investors have agreed to purchase some 20% of Widget Holdings Limited (when it is all set up) and will pay some £100k for these shares, and my client will Own the other 80%
Part of the reason for this is so that ex husband will still benefit from his 10% of Selling Widgets Limited but they don’t want him to benefit from anything new that he hasn’t been involved in – ie the new businesses Making and Consulting. The old business will not be affected detrimentally so this is not detracting from the value of the ex-husbands holding it is just excluding him from new ventures.
They have agreed all this “in their heads” and then came to me to advise / help (I wish they had notified me sooner rather than at the last minute but nothing new there….)
The issue is the transfer of ownership of the 90% of Selling Widgets Limited to Widget Holdings Limited. And this is where I am seeking advice from members.
My client has said she wants to just “give” her shares in Selling Widgets to Widget Holdings and sees no reason why she can’t just do a share transfer for £nil. As she owns all of Widget Holdings Ltd. “It is my company why do I have to wait for HMRC” (etc
I have advised that we need to seek clearance from HMRC that the transaction won’t attract a tax liability but they just want it all done before 31st March.
I have advised that a share for exchange is needed (and the costs involved – I use a local law firm to do this type of thing so all is done correctly) but it may not work correctly as Shares in Oldco are not all being exchanged as ex husband still owns some.
I want to help but don’t want to give the wrong advice or upset my client so my questions are;
- Do we have to do a share for share exchange? Can we just do it? Ie she sells her 90% holding in Oldco to New parent so for £nil
- If we do that is it likely that HMRC would challenge in the future and say the sale was at undervalue
- Should the sale be at Market value – lets say £200k and we defer the gain via a holdover claim?
- Stamp duty issues and the reporting of any disposals
Apologies if I am “putting” on members for thoughts – I am not seeking free advice on actually doing all I am merely using you all as a brainstorm for ideas/things I have missed/should consider/different options (in the way I used to when in my old practice and you just sat with everyone and kicked the ideas around – I do miss those days sometimes!!)