My client subscribed for 23 £1 ordinary shares in an unquoted trading company. He paid £23, although the true value was very much higher. He now wishes to sell the shares - for £52000. Is there any way in which he can substitute market value for the cost figure,eg by reference to the 'arm's length' rules?
sjd
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Not a purchase
He subscribed for the shares. Under S 17 market value does not apply in these circumstances?
Yes...
...but if the client's acquisition was at the then market value then someone else's disposal is likely to be regarded as having been at that same market value, possibly under the value shifting rules in CGTA, S29
There is more to this ...
... than meets the eye. Why would your client be allowed to acquire shares at less than MV unless whoever the other shareholders are are connected persons or unless this in some way in return for services? This could be treated as a disposal by whoever controls the company under the CGT value shifting rules, in which case the MV rule would be applied.
If your client is an employee of the company the difference between MV and £23 should have been taxed as employment income on acquisition by refernce to MV. If your client acquired the shares by reason of someone else's employment, e.g. say the majority shareholder was the client's brother then the shares could be regarded as acquired by reason of the brother's employment and charges may arise (on the brother) under the employment related securities legislation.