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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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We currently have a business and we want to sell part of this

Customer Question

We currently have a business and we want to sell part of this business, and want to know the most Tax efficient way please? Would selling part of the business, and retaining what is left of the business, be subject to Entrepreneurs allowance? Or do we have to sell the Company and start up a new Company with what is left?
Submitted: 4 years ago.
Category: Tax
Expert:  TonyTax replied 4 years ago.

Can you tell me what type of business you operate and confirm whether it is operated through a limited company, as a partnership or as a sole trader please. What do you mean by selling "part" of the business?
Customer: replied 4 years ago.

We operate a business with two parts a water cooler side which we want to sell, and a purified water business that we want to keep. This is run as a single Company.It is a Limited Company trading for 14 years.

Expert:  TonyTax replied 4 years ago.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 4 years ago.
Hi again.

You should refer to the HMRC helpsheet HS275 as part of this answer.

You can only claim entrepreneurs' relief if you are reducing your capital involvement in the business. In the case of a limited company, that means selling some or all of your shares. That is not what is happening in your case. The company owns the business goodwill and that is what you are looking to sell a part of, ie something owned by the company.

Give that there are two parts to your business and that you want to retain one part, you would need to find a way of separating them. The problem you have is that if you split the business into two companies, there may be tax consequences which I cannot go into here (see here and here) and which you would need to take much more detailed advice on before going ahead to avoid the pitfalls.

However, take a look at the article here. This suggests that a properly organised demerger resulting in two companies could allow you to sell your shares in the water cooler business and claim entrepreneur's relief even though it may not have operated as a stand alone trading company and you not may not have held the new company shares for 12 months leading up to the disposal. There is the potential for HMRC to claim that tax avoidance was the reason for the demerger as opposed to genuine commercial reasons.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 4 years ago.
Hi again.

I can see that you have read my answer to your question. If you need further clarification, please let me know. If not, would you kindly rate my answer so that I get paid for my work. Thanks.