Cutting tax on share transfer

BO writes: We run a property company that is a 100%-owned subsidiary of a holding company. The holding company was set up three years ago but its structure has become cumbersome and we want to pass the subsidiary´s shares to the shareholders and repay loans the shareholders made to the holding company. Can this be done easily and without the payment of tax?

Answer

The reorganisation can be achieved in two ways. The easiest is to transfer the subsidiary´s assets and liabilities to the holding company by way of a "hive-up" agreement. A professional adviser can prepare the paperwork and obtain tax clearances. The alternative is to liquidate the holding company. The Society of Practitioners of Insolvency (0171-831 6563) can give you the names of local licensed insolvency practitioners. Once appointed, a liquidator will distribute the company´s net assets to the shareholders. In this case the main, if not only, asset will be the investment in the subsidiary company. As long as other liabilities are paid, the liquidator can distribute the subsidiary´s shares in "specie" rather than cash. This will achieve your aim, allowing shareholders to hold shares in the old subsidiary. The loans made by shareholders to the holding company need to be cleared as part of the liquidation and will need to be funded from the subsidiary´s retained earnings by way of a dividend. This may have undesirable tax consequences for shareholders, so professional guidance should be sought