Corporate Reorganisations: What are the Options?

Corporate reorganisations frequently involve the disposal of all or part of a business and can take the form of a:

• sale of shares

• sale of the trade and assets of the company

• hive down

What is a hive down?

A hive down occurs when the trade and assets of one company is transferred to a new subsidiary which itself is then sold to a third party.

A hive down can provide some of the tax advantages of a sale of shares whilst avoiding some of the disadvantages:

• Trading losses are transferred to the new company and are eligible for use (subject to anti-avoidance rules)

• Capital allowances remain unaffected and no balancing adjustments are needed

• The third party acquires a company with the assets it requires and a clean compliance history

• Shares in the new company qualify for substantial shareholding exemption (SSE) and degrouping charges will be exempt if:

  • the assets were held and used in the trade of another group company for 12 months before the transfer and continued to be used in the new company

Successful corporate business disposals can be achieved with careful planning

Advantages and disadvantages:

Sale of shares

	Advantages	Disadvantages
Vendor	Only gain on shares is taxed	Potential degrouping charge
	Substantial Shareholding Exemption (SSE) or Business Asset Disposal Relief (BADR) may be available
	Use of annual exempt allowance (AEA) or existing capital losses can reduce tax on any capital gains
	No effect on capital allowances of company assets
	Accounting period of the company does not end
Purchaser	Losses of acquired company available (subject to anti-avoidance rules)	Extra group company may negatively affect reliefs and thresholds
	Stamp duty payable (0.5% in 2024/25)
	Legally straightforward process

Sale of trade and assets

	Advantages	Disadvantages
Vendor	Rollover relief may be available	Potential balancing charges on capital allowances
		Possible increased gain on liquidation
Purchaser	Purchase price is often more than the tax written down value which could create tax-deductible goodwill	Company losses will remain with the vendor
	Gains can be rolled into new assets	Stamp duty land tax payable on non-residential land and buildings (currently up to 5%)
	Assets can be revalued to current market values	Irrecoverable VAT may arise
	Legal liabilities will remain with the vendor	More legally complex as contracts must also be transferred

Hive downs

	Advantages	Disadvantages
Vendor	Only gain on shares is taxed	Requires careful legal and accounting planning
	No effect on capital allowances of company assets	Potential disruption to existing trade
	Allows company losses to transfer forward which may increase sales value (potential asset for purchaser)
	Controlled divestment option
Purchaser	Purchase a company with a clean compliance history	Stamp duty land tax payable on non-residential land and buildings (currently up to 5%)
	Substantial Shareholding Exemption (SSE) may be available	Extra group company may negatively affect reliefs and thresholds
	Losses of acquired company available (subject to anti-avoidance rules)

Points to note:

Dividend stripping (the practice of removing funds from a company by way of a dividend prior to disposal) can be an effective tax planning tool to reduce the value of a company's shares prior to sale.

This document is a simplified helpsheet and careful research should be completed if you are unsure.

Need more information? Contact us today to find out more.

Verifiable Accounts - qualified accountants providing accounting, bookkeeping, tax and business advisory services.