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bigduckontax, Accountant
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I am looking at selling a portion of my business and want to

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I am looking at selling a portion of my business and want to make sure its sold in the most efficient way possible.The current setup isCompany is setup in Hong Kong and I own 50% of the shares and I am a director. It has been trading for 6 years.We have a investor looking to purchase 33% of the business - which would end up with a 33/33/33 split between 3 people. 2 directors, 3 shareholdersThe proposed structure of the new business is as follows:New Corp is setup (Unsure of where in the world that may get setup at present due to HK changes)
New Corp is setup with 6 Million dollars in loan notes
2 million dollars in loan notes to each share holder
Investor A will put $2 million of physical cash into the business which I would then withdraw $1 million of (and the other director withdraw the other $1 million)
New Corp at this point has zero equity, and effectively 6 million in debt
Old Corp (HK Company) will do a share transfer (?) to New Corp, and New Corp will now own 100% of the shares of Old Corp and all assets / equities etcSo in effect I have been paid $1 million for 16.5% of my shares...How does this work from a tax perspective? Will this class as entrepreneurs relief considering I have basically sold 16.5% of my 50% share?What is the benefit of the investor structuring it this way?Thanks - and I appreciate this is fairly complex.

Hello, I am one of the experts on Just Answer and pleased to be able to help you with your question.

As Old Corp will have ceased to exist having gone out of business your gain of $1m will be liable to Capital Gains Tax (CGT), but Entrepreneurs' Relief will apply which limits the tax to a 10% flat rate. The gain should be converted to sterling using the HMRC Rates of Exchange, say 10.37 [December 2017 rate], say 96.432K, so a tax bill of the order of a tad under 9.7K would be due.

I do hope that you have found my reply of assistance.

Customer: replied 6 months ago.
Hi,
Even though Investor A isn't paying directly for the 33%? New corporation is having $2 million injected into it and then withdrawn.

But you are receiving 1m HK$ for your interest in Old Corp. You could claim Rollover Relief which would postpone the tax until you disposed of your New Corp holding.

Customer: replied 6 months ago.
That makes sense - so just so I am 100% hereIf I sign over 100% of the shares in Company A to New Corp for $0And I now have 33% of New Corp - where Investor A has invested $2 million cash.I then withdraw $1 million in cashI can now claim 10% tax on that once converted to sterling?

Yes, but using Rollover Relief you can postpone the liability until your New Corp investment is sold.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 6 months ago.
I appreciate the advise.

Delighted to have been of assistance.

Thank you for your support.