The problem.
A husband and wife owned a family investment company on a fifty fifty basis. Its only asset was a commercial property, a vehicle repair garage, let to a tenant. The couple wished to sell the property, extract the net proceeds in the most tax efficient way possible, and ultimately pass the funds to their adult daughters before closing the company.
The difficulty was that the company was an investment company rather than a trading one, so the most generous reliefs were unavailable to soften the burden. A straightforward sale of the property followed by a distribution risked being taxed twice, once through corporation tax on the gain within the company and again on extraction at shareholder level, producing a combined effective rate as high as the low fifties. The shareholders were also considering bringing the daughters in through a new class of shares to channel income to them directly, an approach that carried serious hidden dangers.
Our solution.
We analysed five structurally distinct routes and set out the tax consequences of each in clear, comparative terms. The central recommendation was to pursue a sale of the company shares rather than the property itself. This single change removes the corporation tax layer entirely and brings the effective rate down to between eighteen and twenty four per cent. We also identified the commercial lever that makes this attractive to a buyer, namely the stamp duty saving, so the clients could negotiate from an informed position.
For the scenario where a buyer would not agree to a share purchase, we compared a members’ voluntary liquidation against a carefully managed dividend strategy spread across tax years, explaining precisely when each produces the better outcome and how factors such as the shareholders’ income, their health, and inheritance tax exposure should drive the decision. Crucially, we advised firmly against the proposed alphabet share and pre sale share transfer arrangements, setting out how the settlements legislation, the General Anti-Abuse Rule, and the value shifting rules would very likely defeat them and could leave the family worse off than a straightforward sale.
The result was a clear, ranked set of options that gave the family a route to roughly halve their tax cost while steering them away from arrangements that carried severe anti-avoidance risk.