Tax-Efficient Restructure and Family Wealth Planning
Introduction
Our client, the owner of a successful group of businesses, received an offer to sell the entire issued share capital of their main trading company for approximately £4 million. With no immediate need for the sale proceeds, they sought to reinvest the funds for the long-term benefit of their family in a tax-efficient manner.
The group structure included a trading company with around £2 million in cash reserves, a subsidiary generating approximately £500,000 in annual turnover, a property company holding investment and operational properties, and a separate LLP used to contract with clients. Staff were employed through a management company, and shares were held by both the property company and family members.
The client’s goals were to extract value from the business efficiently, ensure the sale would qualify for Substantial Shareholding Exemption (SSE), and explore estate planning options, including potential IHT mitigation through trusts.
The Issue
The primary objective was to restructure the group to allow the sale of the business in a way that would qualify for SSE, avoiding corporation tax on the gain. At the same time, the client wished to release and reinvest the group’s retained profits, particularly into the family’s property company, without incurring unnecessary tax charges. Given the group’s operational and ownership complexity, there were multiple considerations, including goodwill treatment, shareholding structure, and future IHT exposure.
Our Solution
We advised our client to hive down the trade and assets of the main company into its wholly owned subsidiary. This would allow the parent company to dispose of the subsidiary while qualifying for SSE, assuming all relevant conditions were met.
We confirmed SSE should be available, as the subsidiary was trading and wholly owned. We also reviewed the correct accounting treatment of goodwill and ensured that the hive-down transaction would not trigger anti-avoidance provisions, provided the sale occurred in line with the timeline and substance requirements.
Practical challenges, such as the involvement of the LLP, the VAT group, and the employment structure, were addressed to ensure a clean transfer of operations into the subsidiary. After the sale, the parent company would declare a significant dividend, expected to be £5–6 million, to the property company. These funds could then be reinvested into additional property or other assets for the family’s benefit.
In parallel, we reviewed the client’s IHT position and advised on the potential use of family trusts and other planning tools to reduce exposure, preserve wealth, and ensure long-term succession planning.
The Outcome
The restructure enabled our client to qualify for SSE, allowing for a tax-efficient disposal of the subsidiary. The dividend strategy provided a clean and efficient way to move profits into the property company for reinvestment. Our IHT advice laid the groundwork for future planning and asset protection.
Overall, our client achieved a simplified exit, efficient profit extraction, and a clearer path toward multigenerational wealth preservation.
