12 / 07 / 2017

If you have a family business that is run though a corporate structure, there could be advantages to simplifying the group. This could be for a number of reasons, including realising capital for shareholders; reducing costs; governance and reporting; or generally streamlining the structure for greater business efficiency. This was discussed in more detail in Wedlake Bell’s In Counsel, the Corporate Team’s client newsletter (Autumn 2016); but simplifying a group through closing corporate vehicles can also have significant tax relief and succession planning benefits for the shareholders.

Shares in unquoted trading companies can qualify for business property relief (“BPR”) for inheritance tax (“IHT”) purposes, reducing the rate of IHT on the shares by 100%. However, if your shares are in a dormant or non-trading part of the group, they will not qualify. It is a similar position in respect of “entrepreneurs’ relief” for capital gains tax (“CGT”) which is available for certain shareholdings and reduces the rate of CGT to 10% (from 20% for higher rate tax-payers); but one of the conditions is that the company must be trading. A simplification of the group structure could be used to remedy the situation and allow your shares to qualify for both these valuable tax reliefs; offering you opportunities to carry out estate planning with the shares with no or reduced IHT and/or CGT.

A simplification also provides succession planning options: enabling a business to be divided to cater for differing objectives within a family, or to organise the group so as to better enable the business to be passed into the hands of the next generation. If the simplification results in BPR being available, it should be possible to set up family trusts to hold your shares for younger members of the family without a tax cost.

A simplification can be achieved via a members’ voluntary liquidation, whereby a liquidator realises and distributes assets to creditors and shareholders, and dissolves the company. A strike-off application would be a better procedure for dormant and
shell companies; but which route is taken depends entirely upon the circumstances of the group.

Corporate simplification can be beneficial on many levels, and Wedlake Bell’s Insolvency, Corporate and Private Client teams work together to advise on all of the relevant legal aspects, so as to achieve a result that is better for the business, and the personal objectives of the individual shareholders.

For further advice or to see a copy of In Counsel, please contact Camilla, Edward or your usual Wedlake Bell adviser