If you have a company with mixed trading and investment activities, perhaps because you had some excess cash in the business and chose to invest it in stocks and shares, or you bought either residential or commercial property with it for letting out, then you may have walked unknowingly into a tax trap.
By Phil Kinzett-Evans
There are lots of tax reasons to reconsider whether the investments are best held in the company or not and these include:
- If you want to liquidate the business and claim Business Asset Disposal Relief (formerly Entrepreneur’s Relief);
- If you are thinking of selling the business and a Buyer would likely not be interested in activities outside of the core trade;
- If you have a corporate group and you want to sell the subsidiary
- If you wish to invite investment into your early stages trade for it to grow, but not give a guaranteed return or hold investments (asset-backed) which prevent investor reliefs.
There is an easy way to get those assets out of the company via dividend, but that is very expensive. Or you could pay yourself a bonus and buy the assets, but again that may result in significant tax and national insurance charges.
The last thing you need when you are looking for investment, thinking of selling or otherwise exiting your business is that you are going to have to pay more tax on the bit you may want to keep as an investment for your future.
All is not lost!
At UHY Ross Brooke we very often advise on the ‘demerging’ of a business into its trading and investment parts. Unlike a split of two trades from each other, there is no simple statutory framework to follow.
If done incorrectly, carving up a business can result in some substantial and unexpected tax charges. If done correctly, the tax charges are much reduced, or even eradicated entirely, until such time and the investment asset is sold or liquidated.
If you fall into one of the above scenarios or have something in your trading business you need to be held separately then please do not hesitate to contact us, to discuss whether we could help.
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