At Old Mill, we are always on the lookout for innovative ways to help our clients save on taxes while ensuring their financial well-being. In today's financial landscape, where every penny saved counts, recent case law in the world of corporate tax has confirmed the potential value and tax savings which can be achieved by having a dormant subsidiary in a corporate structure.
The Case for a Dormant Subsidiary
If you operate a standalone Limited Company and envision a future sale of the business, the prospect of selling the company, while exciting, comes with potential tax implications, especially if the buyer insists on a trade and asset sale.
In such a scenario, the company may face a substantial Corporation Tax charge on the disposal of chargeable assets, including goodwill. This is where the dormant subsidiary comes into play.
By establishing a dormant subsidiary well in advance of any sale, you can engage in pre-transaction planning that can ultimately facilitate a share sale covered by the Substantial Shareholding Exemption. This exemption is a powerful tool that can shield gains on disposal from tax, giving substantial tax savings.
The Quirk in the Rules
Now, here's the intriguing twist: the same planning advantage is not available to a standalone company seeking to achieve the same tax benefits. This revelation might sound perplexing, but it has been solidified through a significant decision at the Upper Tribunal.
In essence, a dormant subsidiary offers a unique tax-saving opportunity that is not accessible to standalone companies. By putting this strategy into action, you could not only be minimising tax leakage on a business sale, but ultimately safeguarding your wealth and financial future.
A Wise Investment
At this point, you might be wondering about the costs associated with establishing and maintaining a dormant subsidiary. While there are some minor setup expenses and recurring fees, the potential for tax savings down the road is nothing short of staggering. For a relatively minimal investment, you could potentially save millions in tax when you decide to sell your business.
Here at Old Mill, we understand the intricate details of tax planning and the importance of long-term financial security. We can guide you through the process of setting up a dormant subsidiary, ensuring compliance with all regulations, and optimising tax strategies to unlock substantial tax savings. We also offer various pre-sale tax due diligence reviews covering VAT, Corporation Tax and payroll taxes, to review whether the business is 'sale ready'. We can then help you, if necessary, to make the essential pro-active corrections or changes to ensure that when a buyer does come along, there are no tax surprises which result in price 'chipping' or, worse, the buyer leaving the table.
Conclusion
We always tell our clients, the devil is often in the details. The Substantial Shareholding Exemption, when paired with a dormant subsidiary, can be a game-changer for businesses contemplating a future sale. The potential tax savings are undeniable, and for a minimal cost, the benefits far outweigh the initial investment. Undertaking pre-sale due diligence is also something I highly recommend; if issues are unearthed as part of a takeover process, it is often too late to take action.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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