When purchasing a business, there are generally two methods available;

• an asset purchase; or
• a share purchase

Asset purchase

An asset purchase involves the purchase of some or all of the assets owned by an entity and used to carry on the business of that entity. Assets may include fixed assets (land, buildings, machinery, trading stock), and intangible assets such as goodwill or intellectual property.

Usually, the assets are specifically identified in the sale and purchase agreement, allowing the buyer more control over which particular assets and liabilities (if any) it wishes to purchase.

We are looking specifically at the property implications:

Stamp Duty Land Tax (SDLT)

SDLT will be chargeable on the purchase of land and buildings at the relevant scaled rates.

Higher base cost for assets

When the buyer acquires the assets, a new base cost of acquisition will be ascribed to the assets. This means that on the disposal of the relevant assets, any profit will be calculated by reference to the increase in value above the new base cost. However, on a share purchase, the assets will retain the base cost of acquisition ascribed to them in the accounts of the target company, which will usually be lower than if the assets are acquired separately.

Capital allowances for plant and machinery

Where a UK buyer acquires plant and machinery for a price greater than their current tax written down value, the difference can potentially be used to offset future corporation tax liability.

Business assets roll-over relief

If assets such as land and machinery are acquired, any gains on other disposals of similar assets in the preceding three years or anticipated in the next year, may be “rolled-over” until the sale of the recently acquired assets i.e. the buyer may be able to defer any pre-existing tax charges on gains. Liability to capital gains tax following the sale of an asset can possibly also be deferred by reinvesting proceeds into Enterprise Investment Scheme (EIS) eligible shares although this relief is also time limited.

 

Share purchase

A share purchase involves the purchase of a selling entities shares in order for a buyer to obtain ownership. A share purchase is slightly more complex than a purchase of a businesses assets, because with the shares come a range of potential liabilities, many of which may not be identified on the balance sheet of the entity.

Where a purchaser acquires 100% of the shares in an entity, the purchaser takes control of the entity and all of the assets and liabilities.

Again, only looking specifically at the property implications:

Stamp duty

When any shares in a UK company are transferred (subject to very limited exemptions), stamp duty is payable at the rate of 0.5% of the total purchase price (rounded up to the nearest £5 on each transfer instrument), typically paid by the buyer, which must be paid within 30 days of closing.

Stamp duty does not apply to most asset purchases.

VAT

VAT is not payable on the transfer of shares.

However, where the asset purchase does not amount to a transfer of a going concern, VAT will apply to the purchase price of the assets. This can be a problem for a buyer if it is unable to recover all of its input tax. See article Transfer of a going concern