Keep it in the family

Scenario one

A client actively looking to exit part of his business

For commercial reasons, the group is made up of a number of single companies, separate from each other, some of which own trading property. In an ideal situation the client wanted to sell some of the businesses, banking some cash personally and retaining the properties and the balance of cash within a corporate structure. This can then be invested to support his retirement if required and to pass down to his family.

We helped him reorganise his affairs, creating holding companies and group structures for his business interests. This allows him to transfer the properties and cash from retained profits to the holding companies. Doing this ring-fences any risks associated with the trading business, but also has the following benefits:

• The trading businesses themselves are now ‘clean’ and ready for sale.
• Providing all qualifying criteria are met, in due course the consideration from the sale could benefit from Substantial Shareholdings Exemption (SSE) resulting in a tax free disposal.
• The cash would then remain in the holding company for use anywhere in the group.

Our client now has separate structures giving two options:

1. Extract the cash
   He would like some personal cash and use his entitlement to Business Asset Disposal Relief. To do this he could liquidate one of the companies post sale. He would pay Capital Gains Tax on the distribution (subject to HMRC’s targeted anti avoidance rules) but at 10% on the first £1 million and 24% thereafter. At current rates this would be relatively cheap.
2. Keep the company
   He could keep the company structure. This could be particularly beneficial where the company has retained the commercial property and the cash consideration. This could then become a family investment company (FIC). Including other family members, and potentially trusts, prior to sale can make this a very attractive option. FICs are a tax efficient vehicle for protecting assets, supporting succession and wealth transfer to the next generation.

It is likely that our client will extract from one company and retain the other – with the hope of enjoying the best of both worlds.

Scenario two

A family of three brothers

The brothers took over the family business some time ago, diversifying its trade, and each having control over a separate arm. In order to improve visibility of individual trade performance, each trade is now being carried out by a separate subsidiary company.

As with all families, there has been some sibling rivalry with discussions around sale, exit and separation of the business with potentially each wanting to go their separate ways.

While matters have not yet come to a head, the fact that the trades are in separate subsidiaries is helpful for a number of reasons:

• If the brothers decide to go their separate ways, the business could be split completely by way of a statutory demerger. As the trades are already separated this would simplify matters.
• Similar to scenario one, if a potential purchaser comes along only wanting to buy a specific part of the business, they are able to do so without too much disruption. Typically this is on a tax free sale by virtue of SSE outlined above. If the sale is after a demerger, then each brother could get his share of the profits.
• Again, this structure could ring fence from trading risk any investment assets which would likely be held in the holding company. So, if one business is not performing well the others need not be affected.

As with many family business issues the structure needs to be adaptable as circumstances change as part of ongoing conversations.