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 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.
How to transfer assets between two companies
The transfer process itself can take the form of a contract for the 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 that 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.
Please note that the information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While our aim is that the content is accurate and up to date, it should not be relied upon as a substitute for tailored advice from qualified professionals. We strongly recommend that you seek independent legal and tax advice specific to your circumstances before acting on any information contained in this article. We accept no responsibility or liability for any loss or damage that may result from your reliance on the information provided in this article. Use of the information contained in this article is entirely at your own risk.
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Comments (18)
If my client plans to transfer, few assets to its group CO.
We have the Fair Value share of the transferring Co. , as on 31 Dec 2022 in the Investments proposed to be transferred.
We have the details of the COST of these Investments proposed to be transferred (from clients Finance team) and CARRYING VALUE as on date of transfer.
As we are transferring the Investments to a related CO. Should we consider either COST / Carrying Value for computing the Goodwill?
Will there be Goodwill involved in this case and whether it needs to be computed, as the Investment assets re getting transferred from one Co. to its Sister concern. Please advise
Thank you for your enquiry, Jignesh.
I’m afraid we are unable to provide advice on tax considerations on specific scenarios, and we would strongly suggest you seek the advice of an accountant on this matter.
Having said that, in relation to your query regarding goodwill, you may find the information (which has been quoted form the ACCA website) helpful:
Goodwill arises when one entity (the parent company) gains control over another entity (the subsidiary company) and is recognised as an asset in the consolidated statement of financial position. Under IFRS 3, Business Combinations, goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. Goodwill is not amortised but must be tested annually for impairment.
For your benefit and understanding we include an explanation from BDO of IFRS 3 Business Combinations and IAS 36 Impairment of Assets, which will assist you in the preparation of the assessment when testing for impairment at each reporting date.
Links:
IFRS 3 Business Combinations: https://www.bdo.global/getmedia/c0df84a6-d172-465a-8346-7559f4ecbfa1/IFRS-3-AAG.pdf.aspx
IAS 36 Impairment of Assets: https://www.bdo.global/getmedia/fd3078e0-d4a0-4ddf-be7c-9143adc0401b/IAS-36-AAG.pdf.aspx
ACCA website: https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/accounting-for-goodwill.html
We trust this information is of use to you.
Kind regards,
The QCF Team
There is well established partnership (or Society in Mauritian context – same characteristics of a partnership) – but the partners have made a valuation and has proposed to sell a percentage to a new person – as a new partner
A valuation has been made and accepted by the parties and the proposed % share in the partnership to the newcomer has been accepted.
But in the meantime – before making the changes and to amend the partnership deed % holding structure – the existing partners have decided to set a limited company
And to absorb the fixed assets of the partnership and to carry on with the same business line which is : a care home for the elders and persons who are in need of special care after an operation or other medical issues
They are using same valuation – done for the partnership and the proposed percentage shareholding in the new set up limited company to the new person.
My question is;
IS IT LEGAL TO USE THE SAME VALUATION DONE FOR THE PARTNERSHIP AND APPLY SAME TO THE NEW COMPANY – WHICH IS NOT IN OPERATION YET.
BUT THE NEW COMPANY WILL DO SAME BUSINESS OPERATIONS
Thank you for your kind enquiry, Asif.
Unfortunately, we only specialise in UK company law, and we cannot provide advice relating to companies based in Mauritius.
We are sorry we cannot be of more assistance in this instance.
Kind regards,
The QCF Team
Hi ,
Can a parent company transfer its share it has in the other company to its subsidiary?
Thank you for your kind enquiry, Thomas.
From a company secretarial perspective, there’s nothing wrong with transferring shares held by a parent to one of its subsidiary companies. Restructures like this are common and can take place for a variety of reasons. A standard transfer of shares procedure is usually sufficient to achieve this.
We trust this information is of use to you.
Kind regards,
The QCF Team
Hi,
If a subsidiary has been set up for the purposes of separating trading (of the parent company) from investments, is it right to say that the parent would be able to move an asset such as an existing share dealing account portfolio to the subsidiary without creating a tax liability for either entity ?
Thanks
Thank you for your message.
Please note that we are not accountants and cannot provide advice on specific scenarios. However, if the transfer is between two entities that form part of the same group, then any usual capital gains tax liabilities here may still be exempt. Having said that, we would strongly encourage you to seek professional advice from an accountant to make sure.
I am sorry we cannot be of more assistance on this occasion.
Kind regards,
The QCF Team
Hello, we are wanting to sell all of our assets to a new company.. Do we use fair market value cost, and do the new company start a new asset depreciation list? What other information will I we need to sell the assets?
Hi Xan
Thank you for your kind enquiry.
Generally speaking, and assuming the two entities are not a part of the same group, it is usually best to sell the assets at fair value costs, due to its impact on Capital Gains Tax.
Whether you require an asset depreciation list will largely depend on the actual type of assets being sold.
With regard to other information you may need as part of the contract, we really cannot give advice on specific scenarios. Also, because of the potential tax and accounting considerations involved in this process, we would suggest you seek the advice of an accountant.
Kind regards
The QCF Team
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