Would Entrepreneurs' Relief be available?

Comapny liquidated after 25 years; new company traded for 3 months...

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A company traded for 25 years with husband and wife as sole directors/shareholders, before going into voluntary liquidation. During this process, the liquidator sold the remaining stock to the husband.  This was transferred in turn to a new limited company, with the husband as sole director/shareholder.

This new company traded for three months – the time it took to sell the stock for a reasonable profit, after which the new company remains dormant, shortly to apply for “striking-off”. If the remaining assets of the company are distributed to the husband upon dissolution, and bearing in mind that the new company traded for three months only, would the husband still qualify for Entrepreneurs’ Relief?  He is 64 years old.  

Replies (12)

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By Ruddles
30th Mar 2018 14:37

I would argue that ER should be available - the issue will be in convincing HMRC that the arrangements weren't put in place to gain a tax advantage. Why didn't the existing company simply sell off the remaining stock? Was there some urgency to liquidate it?

If the stock was sold at a profit in company 2, what has happened to that profit?

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Replying to Ruddles:
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By songb1rd
30th Mar 2018 17:54

Hi Ruddles
The long-established company became insolvent, and went into voluntary liquidation. The remaining unsold stock was valued independently, and the Insolvency Practitioners were advised that it would be appropriate to accept an offer from the new company to purchase the stock at this valuation price.

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By michaelblake
30th Mar 2018 19:03

No. The conditions at TCGA 1992 Section 169I(5), (6) and (7) are not satisfied, viz

169I(5) A disposal within paragraph (c) of subsection (2) is a material disposal if condition A, B, C or D is met.

169I(6) Condition A is that, throughout the period of 1 year ending with the date of the disposal–

(a)the company is the individual’s personal company and is either a trading company or the holding company of a trading group, and

(b)the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group.

169I(7) Condition B is that the conditions in paragraphs (a) and (b) of subsection (6) are met throughout the period of 1 year ending with the date on which the company–

(a)ceases to be a trading company without continuing to be or becoming a member of a trading group, or

(b)ceases to be a member of a trading group without continuing to be or becoming a trading company,

and that date is within the period of 3 years ending with the date of the disposal.

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Replying to michaelblake:
By Ruddles
30th Mar 2018 20:25

Please explain which conditions are not satisfied and why

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Replying to Ruddles:
ALISK
By atleastisoundknowledgable...
30th Mar 2018 23:20

It only traded for 3 months, so < 1 year.

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Replying to atleastisoundknowledgable...:
By Ruddles
30th Mar 2018 23:27

Ah ha. By referring to “the company” and “the new company” in the same sentence, and talking only about stock being transferred, I had assumed OP was talking about remaining assets of the first, but it is far from clear.

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Replying to Ruddles:
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By songb1rd
31st Mar 2018 00:19

Hi Ruddles

I'm not sure who "OP" is, but yes, we're talking about the remaining assets of the first, or "old", perhaps, company.

The "old" company, insolvent, went into voluntary liquidation (not yet "completed"...), and I suppose in their effort to maximise distributions to its creditors, the liquidators managed to realise something from the sale of its assets - stock, plus some equipment - to the new company. Does this help, or am I repeating myself?

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Replying to songb1rd:
By Ruddles
31st Mar 2018 11:27

OP = Original (or Opening) Poster (or Post)

Your response helps a bit but you need to be quite clear - is your question about ER on a disposal of assets by the new company? If so, for the reasons pointed out above, ER will not be available.

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Replying to Ruddles:
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By songb1rd
31st Mar 2018 12:00

Thanks for that, Ruddles...

...and fair enough. It's just that, as the nature of the business activity of the new company (to which the availability of ER this query relates) was "identical" to that of the old company, I wondered if there was a possibility of "linking", so to speak, the duration of the old company's activities (25 years) with that of the 3 months-worth of the new company's activities...

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Replying to songb1rd:
By Ruddles
31st Mar 2018 12:16

The short answer is “no”

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By michaelblake
31st Mar 2018 12:06

I had assumed that the question referred to a distribution of assets from the new company. If the distribution is of assets from the old company then any gain would qualify for relief if the conditions at 169I(7) are satisfied i.e. the company was the individuals personal company; he was an officer or employee of the company, and the company was a trading company for a period of at least 12 months prior to the cessation of trade; and the distribution of assets takes place within three years of that date.

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By songb1rd
31st Mar 2018 13:38

Thanks to all.

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