Liquidations are an increasingly important tool in tax efficient exit planning. This week and next we illustrate two real live cases which we are currently advising upon. Through using a liquidation we have been able to significantly reduce the burden of tax.
We are acting for a holding company (“HoldCo”) with a trading subsidiary (“TradeCo”). The subsidiary is being lined up to be sold and the company would like to qualify for Substantial Shareholdings Exemption (“SSE”) so that the gain on sale will be treated as non-taxable.
Problem: On the face of it, SSE is not available because of the condition that HoldCo must either be a trading company or holding company of a trading group both before and after the disposal. In this case, HoldCo carries on no activities other than holding shares in Newco. Once NewCo is sold, the group will no longer be trading.
Solution: If the only reason that SSE would be denied is due to HoldCo not satisfying the trading tests after the disposal then the legislation allows the exemption to continue to apply if HoldCo is liquidated in a timescale which is “reasonably practical in the circumstances”. HMRC do not give further guidance on what “reasonably practicable” means, but we have successfully obtained clearances from HMRC agreeing to varying timeframes, both in terms of the appointment of the liquidator, and the length of the liquidation process.
SSE is a notoriously complex area, and non-statutory clearance is always to be recommended. We have dealt with quite a few of these applications and are therefore well placed to assist.
Scenario 2 coming next week ….
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