My client has had an offer to buy all his shares in his personal company.
I believe all the conditions to be able to claim ER are in place.
However, part of the deal is that my client will continue as a director, working full time in the business. He will relinquish all his
ordinary owning, voting shares and, as such, will have no control going forward.
He has expressed the wish to be paid a small salary and a guaranteed 35% of the profits, payable by the issue of a small number of non owning, non voting preference shares.
Would this arrangement infringe the ER rule that the owner has to relinquish at least 75% of his interest in the business?
And, as the cost of the preference shares would be minimal, and potentially the dividend payouts could be very substantial, could the dividends be regarded as income, taxed at income tax rates?
Replies (3)
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75% rule?
I think you are mixing up ER with another relief. There is no 75% rule with ER.
Yes of course the future dividends will be income. Why did you think they might not be?
75% rule?
The 75% rule may have been picked up from the purchase of own shares/capital treatment? It doesn't appear to be relevant to this scenario.
Agreed, future dividends would be subject to income tax.
It may be possible to restructure the deal, so future payments are treated as deferred consideration, if your client was hoping to maximise the amount falling within the CGT net (and hence only taxable at 10% assuming ER is available).