This week, we continue our theme of how to use liquidations to your advantage when considering exit planning strategies, with the second of our two client cases.
We have a client with a trading company. A purchaser has been lined up for the business, but they only want to buy the trade and assets rather than the company itself. How can the net proceeds then be extracted from the company in a tax efficient manner i.e. taking advantage of Entrepreneurs Relief.
Problem: A liquidation would achieve the aim of getting the money out with capital treatment but on initial inspection, Entrepreneurs Relief is not available as it requires the company to have been trading throughout the period of 12 months ending with the disposal. Clearly, once the business is sold, the company will cease to trade.
Solution: Provided the liquidation is completed within 3 years of the company ceasing to trade there is special provision to allow the shareholder to continue to qualify for Entrepreneurs Relief in respect of the disposal of their shares.
In the right circumstances, this type of planning can also be suitable where clients are looking to retire and extract built up funds in a tax efficient manner. There can however be additional complications through the anti-avoidance legislation, Transactions in Securities.
Please contact us for further details.
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