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Planning for the substantial shareholding exemption following M Group Holdings

The obvious conclusion from the Upper Tribunal decision is that every standalone company should form a dormant subsidiary, writes Robert Langston (Saffery Champness), but there are anti-avoidance rules to consider.

Case background

The facts of M Group Holdings Ltd v HMRC [2023] UKUT 213 are relatively straightforward. M Group Holdings Ltd was a standalone company which provided services to hospitals under NHS contracts. In 2015 there were a number of interested buyers in the company but potential tax liabilities made the company less attractive to those buyers.

M Group Holdings Ltd therefore incorporated a new subsidiary Medinet Clinical Services Ltd (MCS) to which it transferred its trade. M Group Holdings Ltd then sold MCS to the buyer. This is a normal structure to sell a ‘clean’ subsidiary to a buyer without the liabilities of the seller.

The transfer of the trade would have taken place on a...

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