The Lemon Fool

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?

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

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

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.

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.

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) ...

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

N.

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

N.