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CGT and IHT reliefs on this company

Looking for some second thoughts.

Successful trading company, profits of £300k per annum.  Been trading for 20 years.  Balance sheet looks like this:

Business Premises £250k

Cash at Bank £3.5m

Investment Properties £0.5m

Net Assets £4.250m

Share capital £1k

Retained Reserves £4.249m

Turnover is about £4m pa.  Employs 20 staff.

Are these trading company shares for the purposes of CGT ER?

Are these shares business assets for BPR?  How would any restriction (excepted asset) to BPR be argued practically?

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qualifications for ER and BPR different

To qualify for ER the shares must be in a company carrying on trading activities.  Broadly this must mean that the value of the shares which relate to  non trading activities must be less than 20%.

£3.5 million at the bank and investment properties of .5 million are in excess of this which would suggest that ER is not available.  However, there has been no mention of goodwill in the balance sheet.  The shares should be valued to include goodwill.  It is possible that if goodwill be included and a dividend declared to get rid of the £3.5 million, ER may be available.

By contrast BPR is not available where the value of any business property is attributable to the value of any "excepted asset"

Excepted assets are those which have not been used for business purposes and are not required for use by the business.  Both the investment property and the cash would fall into these categories. 

BPR would therefore be restricted by the fraction of the value represented by excepted assets.

Again the shares would need to be revalued.

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Not sure I agree on your trading (ER) argument.

" Broadly this must mean that the value of the shares which relate to  non trading activities must be less than 20%"

It is not the value of the shares that is important but the activity as a whole, taking into account turnover, assets and time.  Yes, the company fails the asset test but it certainly seems to pass the other two tests.  The fact the the dirctors have chosen not to distribute the profits is just a circumstance, it doesnt in itself make the company non trading for CGT purposes.

In my opinion...

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