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Tax (Corporate Transactions) (Corporation tax (Consideration on asset sale…
Tax (Corporate Transactions)
Corporation tax
Consideration on
share sale
by Seller
SSE may apply :relieved:
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At least 10% shareholding
Trading company
If no SSE, consider accepting shares or loan notes
Consideration on
asset sale
by Seller
If the seller or another in its chargeable gains group will continue to trade, rollover relief on replacement business assets
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Acquisition cost is reduced by the gain rolled into it. Tax liability therefore deferred :timer_clock: until an asset is sold and no replacement bought
Must be qualifying asset, and acquired no earlier than 12 months before and no later than three years after sale of old asset
Chargeable gains for capital assets eg. land, plant, machinery
Group relief for chargeable gains
Group comprises parent company, 75% subsidiaries and their 75% subsidiaries
If it applies, no gain or loss at the time of the intra-group transfer, but liability is deferred :timer_clock: until the asset holding company leaves the group
Companies should make a joint election
Subsidiaries should be 51% subsidiaries
Parent should be entitled to 50% of the economic rights
Capital allowances may arise
Income profits for IP and goodwill, stock and work in progress
Group relief
Group comprises parent and 75% subsidiaries. (For subsidiary's subsidiaries, multiply percentages)
Beneficially own
Be beneficially entitled to economic rights (ie. dividends)
Trading losses of one group member can be set off against another
Maximum amount is company's profits, and there is a £5 million cap :face_with_cowboy_hat:
Consortium relief
If group relief or chargeable gains group does not apply. Likely to be a joint venture structure
Only consider shareholding which gives right to participate in profits (likely to be ordinary shareholding)
Of this shareholding, 75% should be held by two or more corporates, each of whom cannot hold less than 5%
Effect: if subsidiary makes a loss, can set off lesser of: consortium member's profits OR relevant fraction
Relevant fraction is lesser of these multiplied by subsidiary's loss
Entitlement to profits
Entitlement to assets on a winding up
Shareholding
Capital gains tax
Consideration received for
share sale
by individual seller
Rate reduced :arrow_heading_down: by Entrepreneur's relief if tests are fulfilled. Won't apply automatically, individual has to make a claim
5% shareholding
Company is a trading company
Seller is an employee or director
All satisfied for at least two years
£10 million lifetime limit
May be able to
defer
:timer_clock: tax if consideration is in shares or loan notes
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Holdover (loan notes) :money_with_wings:
Buyer will hold >25% shareholding
Bona fide commercial reason
eg. wished to expand but did not have available cash resources
Loan notes cannot be redeemed within 6 months of transfer
Rollover (shares) :hand:
Buyer will hold >25% shareholding
Bona fide commercial reason
Rate reduced :arrow_heading_down: by Investor's relief if tests are fulfilled. Won't apply automatically, individual has to make a claim
Fully paid ordinary shares and cash consideration
Arm's length transaction and genuine commercial reason
Target is a trading company
Shares are not listed on a stock exchange at time of transaction
Shares held continuously for three years from 6 April 2016
Not an employee or officer of the Target
Stamp taxes
NB if asset sale includes a subsidiary which is being transferred by share purchase SDLT will still apply
On stock transfer form by buyer
Should do tax due diligence
0.5%
SDLT on
asset sale
for any real property by BUYER
See Tax summary for rates
Share sale may trigger
SDLT clawback
where Target received land :house_buildings: as a result of an intra-group transfer and leaves the group within three years
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No liability
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Pre-sale dividend
On an
asset sale
: Consideration paid up to parent company from Seller (now a shell) :shell:
Paid as a dividend
Shell company wound up and parent company takes net proceeds: SSE applies
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Limited partnership (ie. Fund on a
MBI
) are tax transparent
VAT
Sale of shares is exempt
Seller will charge on an asset sale
Exempt if ToGC
Business assets are used by buyer in the same kind of business with no significant break
Buyer is registered or becomes registered for VAT before completion
Risk HMRC will find not a ToGC so get an indemnity to pay any VAT which may become payable after completion OR state price is exclusive of VAT
If Target has elected to waive exemption, Buyer must make same election
Exit charge
Company receives an asset :house_buildings: as a result of an intra-group transfer, then leaves group within 6 years of receipt
Deemed gain is calculated by subtracting base cost from market value of asset at the time of transfer
Liability for Seller
More likely to be relevant on share sale (company is not leaving group in an asset sale)
Income tax
Directors receive shares by virtue of their employment on a management buy-out
Should pay market value
May be entitled to IR or ER if the tests are fulfilled
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Ratcheting arrangements may impose restrictions on management's ability to deal with shares, will be considered restricted securities, and risk they have to pay more income tax
Comply with British Venture Capital Association and HMRC Memorandum of Understanding
Consideration paid in loan notes? Transfer pricing rules apply
If the interest rate is higher than what would have been paid on an arm's length transaction with a third party, HMRC may disallow the difference as a tax deduction
Get tax advice