Corporate sellers should consider using a pre-sale dividend to reduce any CGT charge arising on the sale of a subsidiary (see diagram). For this option to be feasible, the subsidiary must have sufficient distributable reserves to pay the dividend.

The effect of the payment is to reduce the asset value of the company and therefore the sale consideration for the shares. This in turn leads to a lower CGT charge, even though the total amount received by the seller is the same. The dividend itself is tax free in the hands of the seller.

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