Entrepreneur's Relief Query

Entrepreneur's Relief Query

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A client was managing director of the company he was employed by.  He acquired 1% of the share capital for £11k and later a further 4% for £nil (company was bought out of adminstration hence nil value - all documented by solicitors).  He agreed a severance package in Nov 14 having held the 4% for more than one year and sold the shares to another individual still involved with the company (again all documented by solicitors)

The fact that the total 5% shareholding was acquired in two tranches doesn't affect the ability to claim Entrepreneur's Relief does it?  I can't find anything that suggests if does but there is £000s of tax at stake so figured best to confirm with the learned Aweb community.

Assuming I'm correct then the capital gain = (disposal proceeds) - (£11k) - (legal fees relating to disposal)

Thanks in advance

Replies (6)

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By User deleted
01st Sep 2015 22:45

Agree

The company should be the individual's personal company (169S(3)  throughout the period of one year ending with the disposal. So if 5% of the ordinary share capital + voting rights are held for more than one year, as you say, it should qualify. Legal fees should qualify under s.38(c).

Edit: This answer is only a response to the query raised and hasn't looked in to other eligibility conditions

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By Stuart.thomson
01st Sep 2015 22:00

Not trying to through a curb ball but if it was bought out of administration then I would have thought the business in question changed to a new company (as the administrator tends to act for a company/business and not sell the investment shares) OR was it a waiver of liability which really acted as the consideration. Not sure ER would apply if the shares are in different companies - or at least the time clock would be restarted.

There is also a question given the lack of detail in the question, whether the one year ownership condition was met by the tax payer before cessation of the trade if it had not started trading again.

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By The Grammar Police
01st Sep 2015 22:56

Stuart

You THROW a  CURVE BALL. ie a ball on a curving trajectory.

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By Stuart.thomson
02nd Sep 2015 01:13

Thats true one does!

(That's!)

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Quack
By Constantly Confused
02nd Sep 2015 10:07

Curb ball

That cheered me up no end :)

I'm not laughing at you, I'm laughing with you (I hope you are laughing!)

Incidentally, 'curb ball' is a real thing, it was called 'curbie' when I was younger and is a game young hoodlums play which was great fun to play but is now something I view with terror if it is played near my car.

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By ChrisScullard
02nd Sep 2015 11:59

Thanks for the responses. 

Thanks for the responses.  For info when I mentioned that the company was bought out of adminstration I now realise that this was phrased spectacularly badly.  The company was in administration and had a substantial cash injection from the private equity backers and through some very complex route my client ended up with another 4% of the share capital acquired for £nil.  The Employee Related Securities situation was dealt with by the solicitors and declared at the time (2012).

Therefore there was no newco set up when the 4% was acquired.  Also the 4% figure was no accident as my client (and his solicitors) insisted it had to be 4% to bring the total shareholding to 5% for ER purposes.  NB: some of this info has been received since posting the original query.

Also thanks to Contantly Confused for reminding me of a truly excellent childhood game.  I wonder if today's 9 year olds could be entertained for hours with no more than a roadside kerb and a tennis ball..........

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