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PA SGS 8 Consolidation
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Comprehensive notes on SGS 8 private acquisitions based on learning outcomes and SGS activities.
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BPP LAW SCH O O L 4SGS 8: Asset Sale Tax Issues
Approach to tax questions
• Share or asset sale? • What type of tax will seller pay? • Reliefs / exemptions?
• Who is the seller? • Come to a conclusion
• Is seller individual or company? • Buyer tax issues?
L T C G ro u p
L T C (H o ld in g s ) P lc
75% 100%
A a ro n M a x p ro E u r o le a r n L td
F ie ld in g P u b lis h in g L t d
100% 100% 100%
25% 75%
M a x p r o L ith o
E u r o le a rn L angu age
L td R e s id e n tia l T a p e s L td
L td
LT C
P r o p e r tie s L td
(1) SELLER’s perspective B P P L A W S C H O O L 5
Scenario 1
MLL is to make a substantial trading loss during FY ending 31 Dec 2019. Is it possible to use this loss to reduce the tax liability of
Eurolearn following the receipt of consideration from the sale of the Eurolearn business?
GROUP RELIEF
Yes -> provided Eurolearn and MLL are part of same group for group relief purposes
Trading losses in MLL => ‘offset” against income profits and chargeable gains in Eurolearn (corresponding and carried-forward)
Conditions:
A r e E u r o le a r n a n d M L L in th e
(1) 1 company must be a 75% subsidiary of the other; OR
s a m e ofga 3rrdocompany;
(2) Both companies must be 75% subsidiaries u p f AND o r G r o u p R e lie f?
(3) Satisfy the economic and beneficial ownership test L T C (H o ld in g s ) P lc
Economic ownership test Beneficial ownership test
75% 100%
Parent co must be beneficially entitled (directly/indirectly) to at (1) A group means a company & its 75% subsidiaries;
least 75% of: (2) Parent CoE umust r o l e a r nbeneficially own (directly/indirectly) at least
(1) Profits available for distribution;
A a r o nand M a x p ro 75% of ordinary I n c o m e p rshareo fit s capital of each subsidiary
F ie ld in g P u b lis h in g L td & c h a rg e a b l e
(2) Assets available for distribution to SHs on winding-up 100% g a in s
100%
100%
25% 75%
CONCLUSION
E u r o le a rn
MLL is neither a 75% subsidiary of LTC (i.e 3M rdL Lcompany) nor is it a 75% R e ssubsidiary
id e n tia l of Eurolearn L a n or
g u avice-versa
ge bcs:
T a p e s L td
75% x 75% = 56% [indirect ownership test] T r a d i n g l o s s L td
LTC
CONSORTIUM
P r o p e r t i e s L t d RELIEF
Apply where group relief is not available
Where a consortium company is owned by 2 or more consortium members
BPP LAW SCH O O L 6
(1) ‘Consortium co’ = a co that has 75% of its ordinary share capital owned by 2 or more corporate SHs;
each SH owns at least 5% of ordinary share capital [i.e co w/t losses]
(2) Cannot be a consortium co if it’s a 75% subsidiary if any 1 company
‘Consortium relief’ not available on facts bcs MLL does not have 2 (or more) corporate SHs (only 1!); and
MLL is a 75% subsidiary of Maxpro
Scenario 2
MLL made a capital loss of £50,000 when it sold its distribution warehouse in 2017. Is it possible to set this loss of against any
chargeable gains arising on the sale of Eurolearn’s business?
CHARGEABLE GAINS GROUP
Generally: setting-off capital losses against capital gains -> can only be either carried across [same year] or carried forward
Co’s must fall within same chargeable gains grouping for CT purposes which comprises of:
(1) principal company (i.e parent; LTC) and its 75% subsidiaries; and
(2) the 75% subsidiaries of those subsidiaries
(3) provided in each case, the subsidiaries are effective 51% subsidiaries of the principal company.
CONCLUSION
Test is satisfied and MLL and Eurolearn can jointly elect for losses to be set-off because:
(1) Eurolearn is a at 75% subsidiary of LTC (i.e 100%); and
(2) Maxpro is a 75% subsidiary of LTC; and
(3) MLL is a 75% subsidiary of Maxpro
(4) This makes MLL an ‘effective’ 51% subsidiary of LTC (i.e 75% x 75% = 56% )
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