Asset Protection Planning

Author

Rohan Manro

A tax adviser, Rohan successfully completed and passed his final CTA examinations (Advisory & Application and Interaction for owner-managed businesses).

The Government have announced a range of measures aimed at supporting businesses during these difficult times. Regardless of this, business owners should consider steps that might help to isolate valuable business assets from the state of the current business climate.

We are assisting businesses to restructure their organisations with the view to protecting business assets. We have advised on the structuring below but this has become more relevant as a result of the recent COVID-19 crisis.

Company Group Structuring

Forming a group allows the economic ownership to remain the same but to split functions and assets of the business into separate legal entities. As such, businesses may wish to consider forming a group with the view to moving legal ownership of high-value assets such as Intellectual Property (“IP”) or trading premises.

This can be achieved without tax consequences where implemented correctly.

Selling Commercial Property to Director/Shareholder Pension Funds

A pension fund may invest in commercial property. As such, it can be attractive for pension funds to purchase all or part of the businesses trading premises. Any rent paid to the pension scheme is given tax relief but left untaxed in the pension scheme.

Given the current climate, this has become a more attractive opportunity as:

  • One can secure a cash-injection into the company;
  • The asset is held by the pension scheme and thus protected from company creditors;
  • Rent is paid to the pension scheme tax efficiently;

The asset can be held by the pension scheme to continue generating rental income in retirement or sold to a 3rd party without any tax implications.

Employee Benefit Trusts

Another option may be for the company to contribute cash, trading premises or other property into an Employee Benefit Trust (“EBT”).

The asset would be held for the benefit of the company and it’s employees. However, control and ownership of the asset would be with the trustees, who will usually include a director or shareholder of the company.

The EBT may continue to hold the asset separate from the trading activities of the business. EBTs benefit from a number of tax reliefs and can be established without any tax charges.

Sole Traders and General Partnerships

Sole-traders and general partnerships may wish to incorporate their businesses to benefit from limited liability protections. This will mean that exposure to any debts or other financial creditors of the business are limited to those assets held by the incorporated company or Limited Liability Partnership (“LLP”) except in exceptional circumstances or where personal guarantees have been given.

There are several tax issues involve in incorporating new businesses. As such, each case would need to be considered on its own merits. Generally, it should be possible to incorporate a business without crystallising any tax liabilities.

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