Situation

The shareholders of a company containing two separate business divisions carrying on related but very different trades, required the divisions to be separated in a way that Division A could be sold and Division B could be retained. Division A needed to be sellable in a way that the available Entrepreneurs’ Relief was not lost, whilst the tax charges in relation to the restructure of Division B needed to be minimised.

Complications

The obvious restructure methods were not available due to cost constraints and the requirement for one of the divisions to be available for sale.

The company had an EMI scheme in place for two of its directors. The shareholders wanted to leave the EMI scheme in place in respect of Division A, but not Division B.

Solution

Acting on the new substantial shareholdings exemption (SSE) legislation introduced in July 2011, BHP’s tax team offered leading edge advice and formed the following solution:

Structure a hive down of Division B in a way that the various tax reliefs for intra-group transactions applied.

Followed by a transfer of the shares in the new subsidiary to a new company owned by the same shareholders utilising the new SSE legislation.

Particularly innovative advice was required surrounding the anti-avoidance provisions in relation to the new de-grouping charge regulations and the treatment of “untaxed gains” where a transaction occurs between connected parties.

Outcome

This innovative tax advice provided a plan that would allow the client to restructure the business to ensure that the key objectives would be met (securing the 10% tax rate) in a practical and tax efficient manner.

The plan also exceeded the client’s expectations in terms of being able to maintain the existing EMI scheme without the need for significant revisions or the need for the option holders to agree to amended terms. Furthermore, the restructure plan provided the added bonus of Division B being held within a new company structure, free from the history of the part to be sold.

Client testimonial

“BHP has provided a tax solution which is both practical and commercial, which has helped us to think around our issues and find a new business structure that enables us to move forward in the best way for us. The tax advice we received was comprehensive and in keeping with the needs of a business in the 21st century.”