company reorganisations to safeguard your assets
Many businesses trade from a single company which also holds all of the company’s assets. This arrangement places the company’s future at risk should the worst happen.
If your company has valuable assets in the balance sheet, you should consider a reorganisation whereby you separate these assets from the trade itself. The trading company then takes all of the risks of the trade, whilst the key assets are protected in a separate entity.
If you are expanding into new markets or products, you should consider doing the same. Placing your new venture into a separate entity means that if it gets into difficulties, it won’t take your core business with it.
Let’s assume our client has several trading companies which own land, an expensive fleet of vehicles and plant throughout the group.
The current structure is:
If company 2 failed, companies 3 and 4 are likely to fail also. If company 1 failed, it’s likely that all of the companies would.
We would suggest reorganising the companies as follows:
The valuable assets can then be transferred to NewCo Limited, because it only trades with the group and so has insignificant external risk. This structure means that the future of the individual companies is more secure.
tax position on the share exchange
There can be a number of tax charges as a result of transactions of this type including:
- income tax on any potential gain when dealing in shares
- capital gains tax liability from the share exchange
- stamp duty payable on share transactions.
The good news is that with careful planning and providing that certain conditions can be met, all of the above can be avoided. And we can liaise with HMRC on your behalf to get tax clearance on the transaction before you undertake it.
tax position relating to the trading assets
There’s generally two types of assets that you will sell to NewCo Limited – trading assets (eg plant and machinery) and capital assets (eg land and buildings), and each have different tax consequences.
You can sell the trading assets to NewCo Limited for whatever price you wish. This means that we can attribute a low value to avoid any corporation tax on the disposal in CurrentCo Limited. But, you need to balance this against showing a paper ‘loss on disposal’ in CurrentCo Limited’s accounts which might affect your credit ratings.
Ideally, we need to aim for the best of both worlds.
A capital asset (such as a building) can be transferred within a group at a value which is tax neutral – giving the company neither a tax charge nor a tax deduction. As the asset is being transferred within a group, stamp duty is avoided too.
This is a general overview for guidance only and you would need to take advice from us before you act.