One of the most satisfying parts of a tax advisor’s job is to help a client achieve their commercial goals in a tax efficient way. It is easy to find horror stories about people having unexpected and unnecessary tax bills arising either from not taking advice, or from receiving bad advice. At Bessler Hendrie, we make sure that we listen to our clients in order to understand their needs and then give them the right advice based on their specific circumstances.
We recently helped one of our longstanding family clients to achieve a tax efficient demerger of a property investment company. The company had been in the family for over sixty years and had been passed down the generations. Prior to the demerger, the shares of the company were owned by the mother and her two adult children, a son and a daughter.
We had provided accounting and tax services to the company for many years, developing close relationships with the family, so they naturally turned to us when they wanted to plan the future of the company. The mother was approaching retirement and wished to reduce her involvement in the business, and her children each wanted control over their parts of the business so that they could make plans to suit their own circumstances going forward.
As a result of a number of meetings and discussions, it was proposed that the company should be demerged and the company’s assets divided between the shareholders, with each shareholder owning their own investment company. This would allow the son and daughter to continue to expand their own corporate property investment portfolios whilst the mother could choose other investments needing less “hands on” involvement from her.
Having listened to the family and with our knowledge of the company and its history, we considered various ways to achieve their commercial goals, eventually settling on a return of capital demerger. Prior to the 2006 Companies Act, demergers of investment companies were typically carried out by way of liquidation, but more recently return of capital demergers have become increasingly popular as they avoid a liquidation and the associated costs.
We then worked with the family to refine the process, taking into account not only personal wishes but also considering the relevant taxes, in particular capital gains tax, stamp duty and stamp duty land tax. There are a number of tax reorganisation reliefs available on a demerger and we had to ensure the plan was designed to ensure these would be available.
Once the plan was agreed, we wrote to HM Revenue & Customs to seek clearance that they were satisfied that the transactions were being carried out for genuine commercial reasons, and the clearance was quickly granted.
At that point one might have thought the hard work was done, but we worked closely with the family throughout the implementation, recommending a lawyer that we knew would understand the demerger and ensure that the steps were carried out precisely as planned. We even got involved with setting up bank accounts for the new companies that were formed, which was surprisingly challenging! We had the added pressure of trying to complete the property transfers before the stamp duty land tax rates went up.
Through perseverance and working together, the demerger was achieved, allowing the family members to drive their parts of the business forward. We look forward to being involved in the next chapter.
