Corporation Tax

Tax implications of share sale

Produced by Tolley
  • 23 Mar 2022 10:33

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Tax implications of share sale
  • Vendor tax issues on company disposals
  • Companies
  • Individuals
  • Purchaser tax implications on acquiring a company

Tax implications of share sale

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. The due diligence process aims to identify any contingent or hidden tax, commercial or financial liabilities which may potentially fall on the purchaser in the future. If the tax due diligence uncovers material potential tax risks or liabilities, this may lead to:

  1. negotiation of specific warranties or indemnities relating to the potential tax exposure in question in the sale and purchase agreement

  2. a reduction in the price payable for the shares, or

  3. a change to the structure of the deal to work around the potential issue

In a worst-case scenario where the potential tax liability is very large in the context of the transaction in question and outweighs the commercial benefits, the deal may even be aborted.

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 further details about the due diligence process, 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

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