Entrepreneurs Relief Query
Husband has worked for a company for over 10 years as a director. He owned 25% of the ordinary share capital and 8 years ago transferred the shares to his wife who is not employed by the company. She has received dividends since then and these were paid into their joint bank account.
Due to a shareholder dispute the other 3 shareholders have suggested that the company buy-back the shares and the husband leave the company.
Is it following tax position correct?
- In order for the share buy-back to be treated as a capital distribution (i.e. taxed as a capital gain rather than a dividend) the shareholder must have held the shares in excess of 5 years.
- In order to obtain Entrepreneurs Relief (taxed at 10% rather than 28%) the shareholder must have been employed by/or have been an officer of the company for the preceding 12 months.
If the above are both correct only condition 1 is met. (If both conditions are to be met the shares would need to be transferred back to the husband and he would need to hold them for a further 5 years. This is not an option.) The husband and wife have been told by the other shareholders that spousal relief will apply and the wife will qualify for Entrepreneurs Relief.
- I can find no reference to the availability of “spousal relief” and should appreciate any advice,
- Would the situation be improved if the shares were held jointly by the husband and wife for the next 12 months before sale (assuming the husband remains employed during this time?
3. AAny suggestions of ways to mitigate the potential tax liability are welcome
All comments and suggestions received will be much appreciated