The following scenarios help to illustrate our approach:

Case 1

A mother and father wished to transfer control and ownership of their business to their son. They wanted a guaranteed income into retirement to be achieved in the most tax efficient way.

Chris Barrington, tax partner explains: "the challenge was to establish a guaranteed flow of cash for the parents, but, at the same time, avoid the son having to accept personal risk or income tax on monies he would have needed to earn to pay for the transfer of control."

"The solution was to structure a purchase of the parents‘ shares using a Newco set up by the son, and paid for with an issue of loan notes by Newco. The loan notes were scheduled for repayment over a ten year period, financed out of future business profits, meaning mother and father could take capital receipts out of future profits, defer their capital gains tax and utilise maximum allowances over the ten year period. This also kept commercial exposures within a limited liability company vehicle which did not realise any taxable income in completing its purchase."

"In practice, and thanks partly to some additional capital gains tax planning we had put in place prior to this transaction, the parents will have paid an effective rate of tax of only about 1% on their receipts. This facilitated a highly tax efficient profit extraction as well as commercially effective succession."

 
Case 2

An owner of a trading company wanted to sell part of his personally-owned trading premises to a developer and make the best after-tax result to help support his company in a time of substantial growth.

Louise Edwards, tax director explains: "we had previously structured the ownership of the property such that it was personally held, to take advantage of taper relief and to allow profit to be extracted from the company without being NIC chargeable. On the part sale of the premises to the developer, negotiations were crucial to ensure that the deal was subject to capital gains tax and not income tax."

"Having secured capital treatment for the proceeds, they were injected into the trading company by way of subscription for additional shares. A successful advance application to the Revenue, in respect of the subscription‘s eligibility for the Enterprise Investment Scheme, meant that the whole of the capital gain was deferred and the company had the benefit of gross proceeds to fund its expansion."