How to avoid a double taxation trap

Julian Davies

I have been involved in a number of clients’ business sales and have yet to see any evidence of any tax other than capital gains tax when the shares are sold in their entirety.

HMRC’s website says on this subject:

“There may be corporation tax consequences for your company if it’s sold as a going concern.”

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This is correct if the firm was sold as a whole. However, if the seller sells the shares rather than the assets, this avoids a double tax charge on the sale of the assets by the company followed by the extraction of the proceeds from the company.

In respect of CGT the HMRC website states:

“You as an individual shareholder will be liable for Capital Gains Tax on the sale or disposal of your shares in your company. You will pay Capital Gains Tax on any increase in value of the shares over and above the value when you got them net of, for example, any relevant Business Asset Taper Relief or other available reliefs”

Therefore where a buyer buys the shares in the company, the underlying business remains in the company’s ownership, so there is no transfer of the business assets. Instead, the ownership of company shares changes. In this instance, the seller’s capital gain arises on the sale of the shares.

There are other instances where corporation tax would be due on the sale of a business – for example, if the company were to cease trading and the assets sold separately for their market value. In reality this is unlikely to affect many IFA businesses.

But the writer’s suggestion of an IFA practice simply disincorporating would seem to indicate that this is an easy transition. I am not sure I wholly agree, as not only would the FCA process be lengthy and expensive, there would be the issue of liabilities that the FCA would want to be content would pass to the new entity.

Julian Davies

Managing director,

Davies Financial, Bridgend