The care home client operates in Buckinghamshire. It operates through a trading company, with the buildings owned in a sister company. The directors of the companies were getting close to retirement age.
The client received an offer to purchase, based on a consideration per bed. The offer was being considered, but the client wished to review the tax consequences of the sale. The offer was declined, but the review highlighted that the current structure of the business would result in a substantial tax liability on sale.
The sale of the property would have triggered a capital gains tax liability as it would have been considered an investment and would not qualify for Business Asset Taper Relief (BATR). A potential inheritance tax liability was also identified.
Our solution was to merge the two companies. This required dealing with a range of accounting issues; gaining clearance from the Inland Revenue; and handling numerous queries raised by the client’s bank.
The result was a simplified corporate structure and simplified management and tax structures. The profits of the property company became taxable at the lower corporation tax rate rather than at the standard rate – an annual saving of £10,000. Should the business be sold, the transaction would now qualify for BATR; should the directors unfortunately die, a potential inheritance tax liability of £400,000 would be avoided.
We are now working with the client to simplify further the corporate structure and facilitate the acquisition of an associated business. The group is now ready for the next phase of its development.
