‘Q’? for the tax hero’s out there

Hypothetical question (classified info); a large company is buying out a smaller company and a director has longterm shares in the company being bought out. Once the deal goes through the director wishes to sell the shares and retire.
• What options (however creative) are there to sell the holding the most tax efficient way?
• Are there ways that the larger company buying out the smaller company could do things, enabling the directors shares to be sold a more tax efficient way?

The shares are not in an isa.

Most probably in one of the ways listed in the photo.

Seems like a complex issue. Unless no one will suggest here, you may find some luck on UKPF subreddit

2 Likes

If the company is unlisted the sale will probably quality for Entrepreneurs Relief.

If the director holds 5% of the shares and sells the lot. £15m qualifies for CGT at 10%. Which is a pretty good rate of tax.

1 Like

Only £10m

1 Like

Has that been reduced, could be my memory going fuzzy

1 Like

Perhaps the figure you have in mind is in relation to something else?

Entrepreneurial relief has had the following changes:

  • for disposals on or after 6 April 2008 to 5 April 2010, £1 million
  • for disposals on or after 6 April 2010 to 22 June 2010, £2 million
  • for disposals on or after 23 June 2010 to 5 April 2011, £5 million
  • for disposals on or after 6 April 2011, £10 million
2 Likes

This is a complex question with further questions that make it more complex.

There are lots of little rules that go along with ER relief that can trap someone not careful. You should NEVER sell a company and do buy outs etc without getting a qualified accountant and/or chartered tax advisor. Do it wrong and it’ll cost thousands in tax which stretch much further than just the simple sale. Tax planning is key here and you need to give the full history for any advice to be relevant.

Now just to start with ER relief. The rules have changed 6 April 2019 so be careful what you read:
Must be claimed within 1 year of the anniversary of the tax return (31.01.22 for 2019/20)
Must have a 5% holding
The person selling must have worked for at least 24 months and held the shares for 24 months of the company.
The company must be a trading company. Non trading assets won’t count - like investments. There is a 20% substantial extend rule.
EMI options will also qualify for ER relief.

So will the director have held the shares in the company he sells to for 2 years or worked for them? I’m not sure I even understand the scenario.

SIPS are held in a trust and are only for quoted companies. They have numerous restrictions and must be available for all employees. THey must be held for over 5 years to have no tax issues
CSOPS will unlikely not qualify for ER relief as options are restricted to £30,000 and you will likely fall foul of the 5% ER rule. Options must be held for over 3 years to avoid tax issues.
EMI’s are the most popular - but they are specifically banned from all kinds of trades including accountancy and legal firms. Gross assets must be under £30million, have under 250 employees and noone can own more than 30%.

Way too much hear for a forum. Go find a decent tax advisor. :stuck_out_tongue:

6 Likes

I’ll go ever shorter than Ben. As a corporate lawyer (and former tax lawyer), you have not provided even close to enough facts to give a proper answer. In any event, while we could suggest various scenarios, we would refer you to a member of the tax team to advise. Do not underestimate the complexity of this area. I appreciate this is not the answer you were looking for but it is a highly complex area.

2 Likes