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There are various reasons why it may be necessary to transfer assets between two companies. In this blog, we will consider how this can be done, and some of the reasons for doing so, from the perspective of company restructuring (as opposed to acquisition).
Why would I want to transfer assets between companies?
Company assets can include money, goods, real estate, and intellectual property. Other than acquisitions (where these assets will normally be transferred to the purchasing company as part of the sale), reasons for transferring assets between companies include:
Creating a holding structure
Creating a parent-subsidiary (group) company structure can help to mitigate risks by cushioning the holding company from the liabilities incurred by their actively trading subsidiaries.
Normally the key assets in a group of companies are transferred to a non-trading holding company to protect them from risks incurred by the trading subsidiaries.
Diversification
Company owners who wish to diversify their products and services, or go in a new direction, may decide to set up a secondary company. In this case, it may be necessary to transfer some assets to the new company to provide it with the necessary investment (e.g., before it starts generating revenues).
Pre-sale preparation
Company owners who are looking to sell their businesses may want to hold on to certain assets (e.g., intellectual property) to prevent them from being included in the sale. If they intend to start trading again in the future, it may be sensible to set up a new company and transfer these assets across.
How to transfer assets between two companies
The transfer process itself can take the form of a contract for transfer/purchase of business assets.
In the case of money transfers, these can be done as a loan or by purchasing shares in the other company, or through dividend payments if shares in the transferor company are owned by the recipient company.
However, depending on whether or not the companies are both part of the same group, there can be taxes to pay.
Non-group companies
Assets can be transferred between two separate limited companies (i.e., which do not form part of a group), but it should be noted that Capital Gains Tax (CGT) will be payable by the recipient company if the assets are transferred free of charge or below the fair market price.
There are a variety of rules which apply to CGT, and different rates that relate to the disposal (sale or transfer) of assets. In this scenario, the best option will generally be to sell the assets to the new company at a fair market value to avoid CGT.
Group companies
Assets can be transferred between companies that form part of a ‘group’ structure without being liable for CGT. This is part of the “no gain/no loss rule” in the Taxation of Chargeable Gains Act 1992 s 171 (1), which ensures that “assets can generally be moved around a group of companies without any immediate capital gains consequences. This recognises that business activities carried on within the overall economic ownership of a corporate group, within the charge to corporation tax, should, in broad terms, be tax neutral.”
To meet the CGT exemption rules which apply to group companies, it will be necessary for there to be (i) at least one subsidiary company and (ii) one parent company that owns at least 75% of each subsidiary.
Parent companies and subsidiary companies can be set up in exactly the same way as any other limited company is formed, as long as the parent owns the requisite shares in the subsidiary.
Hi,
We want to move some assets from Japan to India and these are calibration Kits developed in Germany.
Can we move these as the transfer of an asset as we are the same companies of Group in a different country with the Same business?
Hi,
I’m very sorry but we can’t advise on specific scenarios such as this.
We hope you are able to find an answer to your question.
Regards,
The QCF Team
Hi,
Please can you advise. Me and my brother have a limited company together with equal shares, we are looking at dividing the property’s within the company and transferring my share to another company which I will own in my name only, and the original company will be kept in his name. What are the implications regarding tax. Thanks
Thank you for the question.
I’m very sorry but we can’t advise on specific scenarios such as this.
We recommend discussing this with an accountant.
Regards,
The QCF Team
My UK company has a wholly owned subsidiary company that has property and other assets. I wish to transfer all assets to the UK company and have the property registered in the name of the UK company. Who can I employ to complete the formalities.
Thanks for getting in touch.
It sounds like a contract will need to be put in place to transfer the assets from one entity to the other – we recommend contacting a solicitor to assist with this.
Regards,
The QCF Team
The article is very helpful and you have prompted the following question about the CGT position for a company owning the freehold for leasehold properties.
When ‘group’ companies have been set up, can one company be limited by guarantee and the holding company limited by shares? If this is permitted, can assets comprising the freehold interest in 66 leasehold flats be transferred to the company limited by guarantee without incurring a CGT liability? If the freehold company then allows lease extensions to take place, can they be at a nil premium?
Thanks for the question!
There’s nothing in the Companies Act 2006 to say that a company of different forms (including a limited by shares and limited by guarantee) can’t be within the same group.
Indeed, in large structures, it is not uncommon to find different corporate entities under one group. The key point is that, as separate legal entities, a limited by shares company can be a member of a limited by guarantee company, and vice versa.
In regards to your question on Capital Gains Tax liability, I’m afraid we are unable to provide advice on specific scenarios. If you are unsure, I recommend seeking advice from an accountant.
Regards,
The QCF Team