DEF Trading Ltd – Family Succession Driven proposed reorganisation

Background Long established food retail business – DEF Ltd Trade from combination of freehold and leasehold premises Mum and Dad are 100% shareholders of DEF 2 grown up daughters active in the business, but with different roles and levels of capability and

experience £12m t/o, £1.2m EBIT Mum & Dad enjoy a good lifestyle and built up personal wealth through cash, assets & pensions Already paying private school fees for grandchildren Business looking to acquire the freehold for one of the leasehold properties they began to trade

from 2 years ago. Consideration £1.5m

Challenge Wealth, decision making & ownership all sat with Mum & Dad, both in their 70s and who don’t

need anything from the business beyond lifestyle wage No mechanism to pass to next generation Whilst daughters & grand-children all well looked after, all been done on fairly informal / ad-hoc

basis so no wealth vested with them Issues re future decision making process and capability of daughters to drive the business

forward effectively Massive potential estate planning / wealth distribution / tax planning issues and consequences

of anything happening to Mum and Dad Mum and Dad determined to keep wealth within the family (i.e. wish for wealth to pass from

daughters to children, not spouses in the event of any fall out) Best way to purchase freehold

Solution DEF valued at £10m. Valuation and structure cleared by HMRC Newco formed Mum & dad swap total shares in ABC for shares (£4m) and loan notes (£6m) in newco Shares distributed as follows:

o 40% Mum & Dado 30% in Trust (so works when kids either not in business or not capable of running)o 15% daughter Ao 15% daughter B

Joint Family SIPP created to purchase freehold made up from:o £750k existing pension from Mum & Dado £675k from daughters made up from utilising full carry back allowanceso £75k debt

Tax paid £600k (10% of £6m loan note)

Benefits

DEF Trading Ltd – Family Succession Driven proposed reorganisation

£1.2m tax saving achieved (£6m x 20%) £150k company tax relief on carry back SIPP contributions for daughters (£750k x 20%) £100k p.a. saved by way of Mum & Dad taking drawings from the loan notes (i.e. of £285k

typical dividend x 35%) Any dividend income taxed in the Trust and used to pay school fees will result in the repayments

to the grandchildren Personal estate planning / wills / trusts all attended to in conjunction with corporate restructure

so ‘full picture’ taken into account from initial discussion with client IHT?????? SIPP benefit?????

Future Bank happy to lend £1.5m to accelerate loan note repayment Ability to ‘gift’ element to daughters Flexible structure to allow either succession by daughters or to bring in and incentivise external

MD Current position

Resulting position

Mum & Dad

DEF Trading Ltd

Mum & Dad

New Holdco

Daughter ATrust

DEF Trading Ltd

100%

100%

30% 15%40% 15%

Daughter B