exceljockey
Blogger
Share this content
0
2
715

Changing shareholding within a company

Changing shareholding within a company

A clients business is owned 75% by the father, 5% by the mother and 20% by their son.

They all work in the business in a full time capacity. At the moment the mother takes a decent salary on which she has to pay tax. They would like to realign the company share holding so they each have 33.3% in order to use dividends as an effective way of getting tax free payments out. They have asked me to rectify this.

However the business is profitable (£60k PBIT on T/O of £330K) and so obviously the shares have value.

How would one go about this with out creating capital gains and/or other tax liabilities? 

Replies

Please login or register to join the discussion.

avatar
By Old Greying Accountant
29th Jan 2013 21:11

Father to mother not a problem...

... if father transferred 35% to mother, then each transferred 6.65% to son I think I am right in saying they should each get £10,600 annual exemption, and entrepreneurs relief so CGT on excess would only be at 10%.

Bearing in mind 6.65% of the shares would have a lower unit value than 51%, and even though it gives a new holding of 33.3%, mother and father still control 66.7% so the value wouldn't be 13.3% of the worth of the company necessarily and a substantial discount would be appropriate.

So, I would say a reasonable value for a "theoretical unrelated third party" would be 5 x £60k profit = £300,000, @ 13.3% = £39,900, discount for minority interest , say 50% min = £19950 max - CGT AE = £21200 (2 x £10600) so no gain - just need to keep mater and pater alive for 7 years to avoid potential IHT charge. 

 

Thanks (1)
avatar
By blok
30th Jan 2013 14:02

.

firstly

if a gain arises on a genuine gift a shares in a trading company, the gain can be held over by election by donor and donee. google help sheet 295 for a start.

secondly

could the individuals not just equally subscribe for a new class of shares.  these shares will only have entitlement to dividends.  obviously it helps that each of them work full time in the company.

Thanks (0)