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The effect of substantial company cash balances on entrepreneurs’ relief.
Our client is a long-established product distribution company and is relatively profitable. It has been operating for many years and has accumulated reserves of £10m of which about £7m is held as cash in the bank.
Apart from substantial fixed assets in premises and vehicles used in the business there are no other investments. No time is spent by management on managing the funds.
Our clients have had an approach to sell their business and we anticipate this would be a share sale. We have read that HMRC do not take the point of accumulated cash assets arising out of the company’s profits as a reason to disallow entrepreneurs’ relief on the whole of the sale proceeds where there is a substantial cash balance surplus to the company’s requirements. However our clients have been given conflicting advice.
The anticipated share price will give a substantial premium over the...
