COMPANY REORGANISATIONS

What are the common situations?

• Partial exits or MBO’s – e.g., one shareholder wants to fully exit from the company and a company buyback may not be possible to achieve capital gains tax treatment.
• Shareholders wish to concentrate on their preferred part of the business (i.e., split the business).
• Asset protection – e.g., “ring fence” certain assets from the trade but maintain ultimate share ownership.
• Inheritance Tax exposure in the future (Business Property Relief).

What are the main routes?

• Placing holding company above trading entity – “share swap”.
• Tax exempt (Statutory) “demergers”, non-statutory demergers – no liquidation needed.
• · Capital Reduction Demerger or Section 110 Liquidation (where Tax exempt demerger not possible).

What are the main tax issues?

• An “income distribution” arising, which HMRC would treat as if it were a dividend.
• For the “demergers” in particular, potential corporate taxes on assets distributed.
• Stamp Duty and Stamp Duty Land Tax – exemptions or reliefs might be possible.

Some potential problem areas

• Staged buyouts – e.g., where a shareholder receives cash but still retains more than 25% of the shares.
• Some reductions of capital – e.g., where there are also significant distributable profits.
• Voluntary liquidations and the “TAAR” – Distributions in a winding up can now be income.

(This is based on legislation currently in force and is not to be construed as formal tax advice).

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