The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
When a company is disposed of by way of a sale of its shares, its ‘history’ including its tax history is transferred along with the shares. Tax due diligence aims to identify any contingent or hidden tax, or commercial liabilities which may potentially fall on the purchaser in the future. If the due diligence uncovers material potential tax risks or liabilities, this may lead to a reduction in the price payable for the shares or may alter the structure of the deal. In a worst-case scenario, it may even cause the deal to abort.
In addition to due diligence, the purchaser will seek to minimise their exposure to tax liabilities through the use of warranties and indemnities in the sale and purchase agreement. A company’s tax ‘attributes’ may also be transferred. These attributes may include, for example, carried forward losses and capital allowances pools that are subject to anti-avoidance rules (considered further below). For guidance on due diligence, see the Due diligence guidance note.
Companies may restructure prior to a sale by hiving down the trade and assets to be transferred into a new company so that liabilities (which may not be related to tax) are left behind in the existing company and hence not transferred to the purchaser. For guidance on the transfer of trade and assets between connected companies, see the Transfer of a trade guidance note.
The tax implications arising on the sale of a company will depend upon the identity of the vendor. The relevant issues are highlighted below, split between individual and corporate shareholders.
Disposals of shares by individuals are taxable under the capital gains tax regime. Tax planning for the vendor (preferably well in advance of the sale) would nee
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