4.3 In this circumstance it is understandable that the Buyer seeks recompense: if the tax losses feature in the deferred tax calculations, then the Buyer will be able to make a claim under the classic covenant in respect of a loss of a Deferred Tax Relief, which is one of the four components of Buyer’s Reliefs. 4.4 The tax losses may be an asset balance within a large deferred tax provision; alternatively they may be a component of a deferred tax asset. The definition of Deferred Tax Relief is: any Relief where such Relief has been taken into account in computing and so reducing or eliminating any provision for deferred Tax which appears in the Completion Accounts, or which but for such Relief would have appeared in the Completion Accounts or was taken into account in computing any deferred Tax asset which appears in the Completion Accounts (“Deferred Tax Relief”). 4.5 As Peasenhall Fine Wines Limited makes profits in the periods after Completion there will be a series of corporation tax payment dates which will trigger the payment by the Covenantors under the deed over the period that the tax losses would have been utilised, had they not been denied. 4.6 If the circumstances are different, and Peasenhall Fine Wines Limited carries on the same trade for all periods up to Completion, the losses should then be available to Yoxford Breweries Limited. However, if the Buyer then procures a change in the trade within 3 years of Completion, the tax losses will be denied, as in the previous example. In this circumstance the Buyer may be tempted to use some native cunning and seek to claim from the Sellers under the tax covenant, on the basis that there has been a loss of a Buyer’s Relief, namely the tax losses. This would be despite the fact that this was caused by actions after Completion. In such a circumstance the Seller would seek to rely on a specific exemption which would exclude such a possible claim. 4.7 One of the classic ways of reducing exposure in cases where there is a grave risk of a denial of tax losses under Section 768 is a waiver of capital allowances, so as to reduce the losses and to increase the capital allowance pool by the same amount. 5.1 There are specific provisions in the Inheritance Act 1984 (“IHTA”) relating to close companies. If a close company makes a transfer of value, then the tax is computed under Section 94, IHTA as if each shareholder had made a transfer of value. The transfer of value is computed on the grossed up amount. 5.2 As an example, Great Ashfield Properties Limited is owned by Mr and Mrs Barker. The company transfers an investment property to the Barkers’ son at an undervalue of £500,000. Both Mr and Mrs Barker have used up their nil rate bands and annual exemptions with earlier dispositions. The deemed transfer of value is therefore £500,000/0.6, which is £833,333. 5 Inheritance Tax Payable by a Company
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