Writing for Tax Journal’s Ask an Expert Column, BKL tax partner David Whiscombe examines tax on transfer of a trading operation.
This article was published in Tax Journal issue 1162.
Question
Our client has wholly owned a small trading company for many years, but is encountering difficulty in selling the business. The latest proposal is to sell the trading operation to two senior employees. The land and buildings, which are valued at £1m, will be retained by the company and leased to a new company, initially owned by the client, into which the trading operations will be transferred. The trading assets are valued at £350k and goodwill at £150k, and it is proposed that the shares in the new company will be sold by the client to the senior employees. Advice regarding any tax pitfalls arising from these transactions would be appreciated. Obviously, the client would like to claim entrepreneur’s relief if at all possible, but the success of the proposed deal is not dependent on this. It is recognised that at least some tax will be payable on the sale of goodwill.
Answer
There are several ways to approach this: which is the most tax-efficient (and what complexity of planning is warranted) will depend to some extent on the base costs of the assets and indeed of the shares in the company…