With business asset values having taken a big hit, now is a good time to restructure your business and mitigate your tax bill in the long run

HOW?

1. By reducing your corporation tax bill

It is not uncommon for businesses to hold the properties they trade from within the company.  However, this may now be an inefficient vehicle. If the property is sold, the capital gains tax will be subject to corporation tax, which could be much higher than the standard rate of capital gains tax (currently 18%).

As property prices have fallen, now might be a good time to transfer the property out of the company and into a private pension, trust or to family members.  The gain can be offset against any losses in the company and held in a private pension until the property market picks up and the property is sold.   It will then attract capital gains tax at the relevant rate, rather than corporation tax which could be much higher. Following this route will also enable the owner to enter into a sale and leaseback arrangement with the entity buying the property where they sell the property but lease it back from the buyer immediately.  This will allow the owner to benefit from stamp duty land tax relief on the leaseback element of the transaction, whilst providing the purchaser with an immediate income stream.

2. By maximising the values within the business

Investors and potential buyers may regard some parts of your business as more attractive than others. It might make good sense to demerge, so that the more attractive elements can attract investment or buyers when the market picks up.  Again, the costs of demerging can be offset against the gains. If the values are low, then the gains are reduced, so demerging those parts that are not core to the more successful elements is a viable approach, as less tax may be payable now than if you demerge when the market picks up.          

3. By transferring assets now when the gains may be lower than they could be in the future

Likewise, if it is the intention to split up the family company between the children, then restructuring now,  when the capital gains are likely to be lower, is a tax-efficient strategy. It may also be that you wish to gift certain assets to your children. If those assets are currently worth less than they were, then now might be a good time to make those gifts, as if you die within 7 years of making those gifts then the inheritance tax payable may be lower than it would have been if they were transferred when the value was higher.

“That sounds good.  What do I do now?”

With some commentators suggesting that there are signs of recovery, then asset values may start going up.  Therefore, to maximise your potential tax savings, you should act now.

Slater Heelis Collier Littler are expert business lawyers who can advise you on restructuring your business to achieve tax efficiency.  We would work with your accountants to achieve the best result for you.  If you would like further advice on this, please contact Emma Lewis on 0161 975 3805 or emma.lewis@shcl.uk.com.