CGT on shares transferred back to original holder from own company

CGT on shares transferred back to original...

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In 2011 on advice from our predecessors our client transferred her personally owned shares in a family company to a company formed in her own name to hold only those shares. Clearance was obtained under S135 TCGA and the new company's accounting entries reflected the investment at £100 and shares issued in exchange at £100. The actual value of those family company shares was considerably more than £100.

The new company is an unnecessary requirement for the client and serves no real purpose. Any distributions to the company from the family company are onward distributed to the sole shareholder. The new company has no other assets or liabilities and does nothing other than hold these shares.

Our client now wants to recover personal ownership of the family company shares but I am concerned as to the CGT implications. The intent would be to transfer the family company shares in specie in either a striking off or in liquidation (as appropriate) but what will be the base cost in the CGT calculation. Will it be the value of the shares on ingoing to the new company or will it be the £100 applied as the 'cost' in exchange for £100 of shares? Or is ther a dispensation route available to reverse the holding and revert to the original base cost to her many years ago (well before 2011)?

Common sense (not applicable to tax normally!) suggests that if there is no dispensation available that the true value on transfer to the new company should be the base value to offset against the current value. Is this correct?

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By Alastair Johnston
19th Aug 2014 13:44

Holdco acquired shares at market value

On the share-for-share swap, the CGT position of the new holding company is not governed by S135.  So although your client holds her shares in Holdco with the original £100 base cost, that has no bearing on Holdco's base cost in its shares in Familyco.  

Whether or not Holdco and the individual were connected persons, Holdco's base cost in the Familyco shares is the market value of those shares at the time of the transfer.  There's 3 years' indexation as well, of course. 

A note of warning - maybe I am being to cautious or pessimistic but it seems worth a mention.  If Holdco serves no purpose and you get rid of it without it ever having done anything, could that endanger the original HMRC clearance? There must have been a commercial reason for the scheme, so why the redundant company?  It could have been part of a larger transaction which overall was accepted as being commercial, but it is not clear from the information you have given.  And if it does endanger the clearance, could that have an impact on other family members?

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