One of the most overlooked aspects of a Delaware flip is the tax implications for founders.
This isn’t a tax guide (you’ll need specialists for that). But it’s important to understand that tax matters, and when you need to get proper advice.
Why Taxes Matter in a Flip
When you restructure your company, tax consequences can arise for:
- You (the founder) — exchanging UK shares for US shares
- Your investors — if there are any
- Your employees — if there are equity holders or option holders
Get the structure wrong, and founders can face unexpected tax bills. Get it right, and the restructuring is clean.
The Key Tax Question: Is This Taxable?
The central question in any flip is: does this restructuring trigger tax on the founder’s gain in value?
The short answer: it depends on how it’s structured.
Why you need tax advice: Flips can be structured to maintain certain continuity treatments for UK tax purposes (such as SEIS/EIS continuity), but this requires careful planning.
Different structures have different tax implications. A good tax advisor will design the flip to minimise founder tax exposure.
What Founders Should Know
1. You’ll likely need a tax opinion
Before executing a flip, you (or your company) will typically get a written opinion from a tax advisor confirming how the restructuring will be treated for tax purposes. This isn’t mandatory, but it’s standard practice. It protects you if the tax authorities later challenge the structure.
2. UK and US tax authorities might view the flip differently
The UK tax authority (HMRC) and the US Internal Revenue Service (IRS) have their own rules. A proper flip structure ensures both are satisfied. This is why you need advisors who understand both systems.
3. Your cost basis matters
In simple terms: if the flip is structured as non-taxable, you “roll over” your tax cost basis from the UK shares to the US shares. If it’s taxable, your cost basis resets to the current fair market value. This becomes important later if you sell your shares or the company is acquired. A higher cost basis means lower capital gains tax when you exit.
4. Post-flip, tax filings get more complex
Once you’re a Delaware company, you have:
- US federal income tax filings
- Possible US state tax filings
- UK tax filings (if a UK subsidiary remains)
- Cross-border coordination between tax authorities
This isn’t unmanageable, but it’s more complex than running a pure UK company.
Who Needs Tax Advice?
You definitely need tax advice if:
- You’re flipping and you’re a UK tax resident (most founders)
- You have investors or other shareholders who are non-UK tax residents
- You’ve raised from UK schemes like SEIS or EIS (special continuity rules apply)
- You have employment income or director’s fees post-flip
You probably need tax advice in any flip, honestly. The cost of tax advice (£2,000–5,000) is trivial compared to the cost of getting it wrong.
The Advisor Coordination
Here’s how it typically works:
- Abrams Law coordinates the legal side of the flip.
- A tax advisor (with UK and US expertise) structures the tax implications.
- Your accountant helps with financial statements, cap table documentation, and post-flip filings.
All three need to be talking to each other. Abrams Law will help coordinate.
Red Flags
Don’t do a flip without tax advice. This is non-negotiable.
Don’t assume the flip is non-taxable without a written opinion. Get it in writing from your tax advisors.
Don’t ignore international shareholders. If you have investors from other countries, their tax situations might differ from yours.
What Abrams Law Handles (And What They Don’t)
Abrams Law handles:
- Legal structuring and documentation
- Shareholder resolutions and approvals
- Filing with Companies House and Delaware authorities
- Governance and compliance post-flip
Abrams Law coordinates but doesn’t provide:
- Tax structuring or tax opinions (they partner with tax specialists)
- Accounting and bookkeeping (they refer to accountants)
- Employment law advice (they refer to employment specialists)
The point: Abrams Law is your legal quarterback, coordinating the team.
Timeline Tip
Get your tax advisor involved early—before Abrams Law starts drafting the flip structure.
Why? Because the legal structure and the tax structure need to work together. If you add a tax advisor halfway through, you might need to redesign the legal structure. That’s wasteful.
Ideal sequence:
- Meet with Abrams Law and understand the legal implications.
- Simultaneously, meet with a cross-border tax advisor.
- Tax advisor recommends a structure.
- Abrams Law implements that structure legally.
- Everyone coordinates through close.
Planning a flip? Abrams Law can coordinate with tax and accounting specialists to ensure the structure is optimal from legal, tax, and compliance perspectives.
