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Director Divestment

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neversay
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Director Divestment

#149484

Postby neversay » July 2nd, 2018, 1:18 pm

I had a tax/legal question from a friend who jointly owns a small business where one co-owner/director wants to retire without compensation for his shareholding (they don't make a claim on the current assets and the business doesn't warrant a buy-out). Is it possible to just cancel his shares (or sell them for a token consideration) or would HMRC have an issue with avoidance of stamp duty?

Clitheroekid
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Re: Director Divestment

#149629

Postby Clitheroekid » July 3rd, 2018, 12:52 am

At the risk of stating the obvious, why doesn't he just give his shares to his co-owner?

gryffron
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Re: Director Divestment

#149831

Postby gryffron » July 3rd, 2018, 10:05 pm

Yes, far less paperwork in simply gifting the shares. Cancelling them requires a shareholders resolution at a GM, and then documenting the changes to CompHse.

Gryff

neversay
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Re: Director Divestment

#149916

Postby neversay » July 4th, 2018, 11:21 am

Thanks @clitheroekid and @gryffon. I was going to suggest gifting but didn't know if there were any circumstances where HMRC might argue that the capital transfer somehow didn't count as a gift. Having no expertise in this area, I wasn't sure if I should suggest he sees a lawyer to be sure, or do you both feel confident that I can recommend going for the 'gifting' approach?

Thanks for your help.

Clitheroekid
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Re: Director Divestment

#150020

Postby Clitheroekid » July 4th, 2018, 6:38 pm

Provided it's a genuine gift - i.e. that no consideration of any description is received for the shares - then there would be no stamp duty payable, so HMRC would never even be aware of the transfer.

I'm assuming from your original post that the shares have no significant value. However, if they do (and for the benefit of other readers who may be contemplating making a gift of shares which do have significant value) such a gift would potentially trigger a liability to capital gains tax on the donor.

If the donor is in any doubt as to the value it would be sensible to obtain a certificate of value from the company's accountants.

PinkDalek
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Re: Director Divestment

#150029

Postby PinkDalek » July 4th, 2018, 7:58 pm

Clitheroekid wrote:

I'm assuming from your original post that the shares have no significant value. However, if they do (and for the benefit of other readers who may be contemplating making a gift of shares which do have significant value) such a gift would potentially trigger a liability to capital gains tax on the donor. ...


Subject to, as I'm sure you know, the possible availability of CGT holdover relief https://www.gov.uk/gift-holdover-relief (in more detail https://assets.publishing.service.gov.u ... /hs295.pdf).

If applicable, the Claim for hold-over relief form should be here:

https://assets.publishing.service.gov.u ... m_2018.pdf

There's also a potential IHT issue, which the OP or his friend may wish to take to the Taxes board. At present, the shareholding might qualify for 100% business relief for IHT purposes but what the donee has to do to maintain relief gets complicated (assuming Business Relief doesn't get axed) ...

neversay
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Re: Director Divestment

#150709

Postby neversay » July 7th, 2018, 11:28 am

Thanks @Clitheroekid and @PinkDalek. I'll see if I can find out more.

N.

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Re: Director Divestment

#154976

Postby Snorvey » July 25th, 2018, 1:33 pm

I'm reading through this and recalled talking to someone a few years ago about 'Deemed Disposals'. I also recall my surprise at the implications of just giving an asset (i.e. shares in an unquoted company) away.

If the donor gifts the share, the donor will be treated as making a disposal for capital gains tax purposes.

The proceeds are deemed equal to the market value of the assets at the date of the gift.

This applies even if the donor and the donee are not connected persons, so the donor might have a gain on which capital gains tax is due but no money to pay the tax.


Alarming. But all is not lost.....

In this instance, the donor and donee can elect jointly to defer the gain under the ‘gift relief’ provision. Essentially, the relief transfers the capital gain from the donor to the donee.

Gift relief is available on gifts of any number of shares in an unquoted trading company in which the seller owns at least 5 per cent of the voting rights.

If gift relief is available, the way the relief works is by taking the capital gain and deducting it from the base cost for the donee.

This means that the donor does not have a chargeable gain while the donee is treated as acquiring the share at a base cost equal to the donor’s base cost.


I don't know anything about 'gift relief' or how to claim for it, but it seems a helluva complicated process (and potentially an expensive one for the donor if not done properly) if you just want to give your stuff away. I'd also imagine you would have to get your shares independently valued, which incurs a cost and at best is entirely subjective.

Snorvey (Definitely NOT an accountant!)

https://www.accaglobal.com/uk/en/techni ... tions.html

neversay
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Re: Director Divestment

#155390

Postby neversay » July 26th, 2018, 4:18 pm

Thanks Snorvey. I'm normally good to help out friends with their businesses but I had no idea this one was so complicated!

N.


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