Disposal of a corporate business Flashcards
What happens if group sales the shares of one of its subsidiaries to a third party?
There will be a de-grouping charge and a possible gain on the shares, unless the SSE applies.
What happens if group sales the assets of one of its companies to a third party?
Gains or losses will be generated from the company which sold the assets and relief can be generated if the proceeds are reinvested into qualifying assets.
What happens if you transfer assets within a 75% group?
No gain/ no loss rules will apply to capital assets.
What is the benefit to a group of buying a loss making company?
Provided there is not a major change in the nature of trade, then the losses from the acquired company can be used to offset gains in the group.
What are the conditions for a substantial shareholdings exemption?
The investing company must own at least 10% of the shareholding of the company its selling. The company must also be a trading company. The substantial shareholding must also have been held for a continuous 12 month period within the six years prior to disposal.
How is cash distributed from a company pre - liquidation?
Cash will be distributed as a dividend for individuals and as dividend for corporate shareholders where no corporation tax payable.
How is cash from a company distributed post liquidation?
Cash is distributed as a capital asset. An individual will pay CGT rates where business asset disposal relief may apply. Corporate shareholders gains will be liable to corporation tax, unless SSE applies.
Would a corporate shareholder prefer a pre or post liquidation distribution?
A corporate shareholder would not mind which way the cash is distributed if the SSE applies, because they would pay no tax either way. However if the SSE does not apply then they would prefer pre liquidation as corporation tax is exempt.
What factors must an individual consider when deciding whether to receive a distribution pre or post liquidation?
An individual must consider the availability of capital losses, the annual exempt amount and business asset disposal relief to mitigate/exempt their gains. They must also consider the rate of tax they would pay on a dividend distribution.
Why would higher and additional rate tax payers prefer a post liquidation distribution?
Higher and additional rate tax payers will prefer a post liquidation distribution because the maximum tax they will pay is at rate of 20%, whereas pre liquidation the lowest they will pay is 32.5%.
Discuss the impacts of a company electing to exempt profits from all overseas permanent establishments?
The election is irrevocable and applies to all overseas PE’S. A company cannot elect to exclude overseas profits on a country by country basis OR a PE by PE basis.
In what scenario is it better to choose to operate a subsidiary instead of a branch when it comes to dealing with expanding a business overseas?
It is better to choose a subsidiary if the tax overseas is lower and the profits overseas are higher. If branch is used then DTR would not fully cover the UK tax charge.
What are common errors to look out for in a corporation tax computation?
Adjusting profits for private expenses, awarding indexation allowance after Dec 2017, awarding the SSE when it is not due, awarding cgt reliefs that are only available to individuals, failing to gross up overseas income correctly and charging dividends to corporation tax.
How is VAT dealt with in with regards to property?
VAT should only be applied to commercial property that is either new or has been opted to tax. VAT never applies to residential property.
