Tax Bite – Deferring 28% Tax on Share Disposals

Consider a scenario where a shareholder is facing a gain at 28%.

This would be the case when he is disposing of a company which does not qualify for Entrepreneurs’ Relief or if he has (or will) exceed the £10M lifetime Entrepreneurs’ Relief allowance.

Options

  1. Do nothing and pay tax at 28%.
  2. If it is a trading company we may want to consider integrating it into a group structure a year before sale. This would allow the corporate group to dispose of the company and, provided that certain conditions are met, any disposal should be tax free due to the Substantial Shareholding Exemption (SSE).
  3. In certain circumstances it may be appropriate to use a Luxembourg holding company. This has the benefit that many share disposals by a Luxembourg company are tax free, irrespective of whether the company being sold is a trading company.

Detailed advice should be obtained prior to any planning of this kind. For example a holding company will usually be inserted using a share for share exchange and we would not want this to trigger a tax charge. For bona fide commercial transactions this would not usually be the case and clearance could be obtained from HMRC.

This kind of structuring generally only results in a tax deferral, although in some cases the shareholder may go non-resident and depending on the jurisdiction they move to they could make a real tax saving.

 

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