Restructuring: Do You Need To Separate Trade And Non-Trade Assets?
As a result of past successful trading and retention of profits, many companies decide to invest their surplus cash to generate a higher return. Whilst investments such as listed shares or investment properties (rented out to third parties) may generate additional income, there are other, less attractive, implications of holding these assets that should be considered.
One of the key considerations is often the longer term tax implications – having a company that holds both a trading business and also non-trade assets, such as listed shares or investment properties, can result in certain tax reliefs not being available, either to the company itself or to the shareholders.
Reliefs such as Business Asset Disposal Relief (previously Entrepreneurs’ Relief) and gift holdover relief for CGT for individuals, IHT business property relief for individuals and substantial shareholding exemption for companies, contain conditions that a company must be trading. The tax reliefs available on the transfer of shares to an Employee Ownership Trust, also having a trading condition. Whilst the definition of trading differs for different reliefs, holding a high level of non-trade assets in what is otherwise a trading company may result in these reliefs being denied.
Restructuring of a company or group of companies in order to separate trading and non-trading activities and assets may be one solution to ensure that the conditions required to qualify for certain tax reliefs are met. From the outset it is important to consider the overall objectives of any potential business restructure, as through taking steps to retain or qualify for one tax relief, it is important to ensure that other reliefs are not lost. How the business is set up to facilitate future objectives should also be considered.
There are various options available in order to separate trade and non-trade assets, and our Transaction Taxperts will work with you to ensure that any new structure meets your current needs and future plans, whilst also ensuring that the restructuring qualifies for all applicable tax reliefs.
Our Transaction Taxperts are currently working with one of our clients to separate out a large portfolio of listed shares from their existing company to a new standalone company, leaving the trade in the existing company. By doing so, not only should this allow the shareholders to qualify for valuable tax reliefs on any future sale of the trading company but having the listed shares in a separate company, will allow them to make decisions about each company independently.
You can read our previous article on ‘Will Your Business Structure Facilitate Your Succession Plans?’ here.
If you would like more information, or want to discuss splitting trade and non-trade assets, please get in touch with our Transaction Taxperts today via [email protected] or call one of our offices.