Sale of trade assets/ Cessation/ Sale of shares Flashcards
What are the options to consider when selling a company to an unconnected person
Sale of shares
Sale of trading assets followed by informal winding up of company to distribute excess capital (capital distribution)
Sale of trading assets followed by stage distribution of proceeds as a dividend.
What do you want to compare from the 3 scenarios
After tax proceeds of the sale of shares
After tax proceeds of the sale of assets followed by a capital distribution on winding up
After tax proceeds of the sale of assets followed by a staged distribution of proceeds as dividends
How to we find the distributable amount.
1) Sell off each individual asset and prepare the final CT computation
2) Calculate the CT liability
3) Take the proceeds - CT liability
4) Pay off any other creditors
5) Add any cash reserves
After we have found the distributable amount what do we want to calculate
The CGT liability if it was capital distribution
Distribution
(base cost )
= gain on distribution *10% (if BADR)
The IT liability if it was a dividend distribution
Distribution
(base cost )
= dividend distributed *7.5%
What is TAAR
Aimed at preventing phonexism where a company is liquidated in order to extract accumulated profits as a capital distribution
eg. liquidating the company gains taxed at 10% then starting similar trade
What are the conditions for TAAR
- Immediately prior to winding up individual must be at least 5% shareholder and voting rights
- The company is a close company
- Any time within a 2 year period following distribution the individual starts a similar trade
- It is reasonable to assume the main purpose of winding up was fir tax avoidance
What are the benefits to the remaining company following a sale of shares
What is the disadvantage
No break in accounting periods, carries on
Losses carried forward unless major change in nature and conduct of trade
Dirty company
