Company purchase of own shares

Personal tax liability

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I have a client whos is looking to retire in a years time and I'm putting some figures together for him.  He purchased his 500 £1 ordinary shares from another director over 5 years ago for £10,000 and is now looking to sell for £50,000.

I'm looking at CPOS as the other director cannot afford to buy his shares.  I reckon that if he doesn't get this for whatever reason and the CPOS is treated as a distribution, his income tax position would be £50,000 less share issue price £500, distribution £49,500 and his CGT position would be proceeds £500 less £10,000 base cost, loss £9,500 not available to be offset.

If we did get CPOS as a capital payment, is the position £50,000 less £10,000 base cost, £40,000 gain less ER(if applicable)?

Many thanks

Replies (3)

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By Portia Nina Levin
12th Jan 2017 10:39

Why is the loss not available for offset? Section 18(3) cannot apply on a PoOS.

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By johngroganjga
12th Jan 2017 10:47

Yes except you have missed the annual CGT exemption (£11,100 in 2016/17) and ER is not a deduction in arriving at the taxable gain. It just affects the rate at which you tax it.

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By Rammstein1
12th Jan 2017 11:10

Thanks to both of you.

I believe the capital loss cannot be offset against his other income as he did not subscribe for his shares. It can only be carried forward and as he is retiring the chances of future gains are remote.

Cheers John, I was only trying to get the base cost issue sorted first.

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