Shares Acquired by Director's Personal Company

Shares Sold to Third-Party Company

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I act for a client who is a director of Company A. Shareholders in A (Mr A and Mrs A) want to sell shares to the director over a 4 year period for a total of £200k. The initial tranche of shares is 10% for £50k and thereafter 10% for £50k for next 3 years. Advisers for A have suggested setting up B Ltd (owned by director) and B Ltd buys shares off Mr and Mrs A. Mr and Mrs A lend B Ltd £50k and are repaid out of dividends B Ltd receives from its shareholding in A Ltd.

This looks too good to be true if, as suggested, there are no adverse tax consequences to this. Surely the Disguised Remuneration rules might apply or could HMRC "look through" the whole transaction as a sham?

Also, the price of £200k has been fixed now and future share acquisitions are only possible when increased profit targets are met. This would logically mean that future share tranches are worth more than £50k.

The final complication is that to accommodate different dividend payments (to effectively enable B Ltd to pay for the shares) the shares are restructured to ordinary and "A" shares. So on the first tranche Mr and Mrs A originally own 1000 ord shares and dispose of 100 A shares, retaining 900 ord shares.

Any thoughts out there?!

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By Portia Nina Levin
03rd May 2016 14:44

There is a transactions in securities issue, as there will not be a fundamental change in ownership.

Mr and Mrs A are using profits that could be paid as a dividend to them to fund the purchase from them of their shares.

The monies that they are receiving (to the extent that they exceed the amount originally paid for the shares) will be taxed as dividends on them.

I cannot see any reason for your chap to worry though, if that is the advice that Mr and Mrs A have been given.

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