Tax implications of a pre-transaction reorganisation
Tax implications of a pre-transaction reorganisation

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Tax implications of a pre-transaction reorganisation
  • Justifications for a pre-transaction reorganisation
  • Tax considerations
  • Stock
  • Trading losses
  • Chargeable gains
  • Substantial shareholding exemption (SSE)
  • Loan relationships, derivative contracts and intangible fixed assets
  • Stamp taxes
  • Value added tax (VAT)

Before disposing of a business or trade, a corporate seller will need to consider how best to structure the deal. The final structure should primarily be dictated by commercial considerations but it is inevitable that ensuring the sale is achieved in a tax efficient manner will be a significant concern.

The first issue to be decided will be whether the sale should be of:

  1. the business and assets themselves (a business sale), or

  2. the shares in a subsidiary company which owns the business and assets (a share sale)

Generally speaking, a corporate seller will prefer a share sale and especially so where the substantial shareholdings exemption will apply to exempt any gain from being taxed. An asset sale is more likely to trigger tax charges for the seller.

By contrast, the buyer is likely to prefer an asset purchase on the basis that it will:

  1. be able to pick and chose which parts of a business it acquires without assuming the tax history (and any attendant exposures) of the seller entity

  2. obtain a higher base cost in the assets it acquires, and

  3. acquire goodwill which may give rise to future deductions against the acquired business' profits for tax purposes

For more on the issues involved when deciding whether to proceed with an asset or share sale, see Practice Note: Share sale or asset sale—tax considerations.

It