Entrepreneurs tax relief help required please

Entrepreneurs tax relief help required please

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A client of mine owns a commercial business and premises  with some adjoining land.

The adjoining land has significant future value as it is the only access point to another large plot of development land.

My client owns 60% of the company and is in discussions to sell his shares for say £1 million pounds without factoring in the land value.

The new owners will have control of the company and consequently have the benefit of the 'ransom strip' in the future which could be worth another half million.

My client has held his shares for say 6 years and has not worked for or been a director of the company.

 Firstly is the client entitled to entrepeneurs relief?

Secondly can the shares be valued and sold now to include the ransom strip (say £1.5 million) on the basis that the balance of over a £1 million would not be paid until the land was sold. It may be that the final payment could be less dependent on the ransom strip proceeds at the time. Obviously we would like to get the whole gain allowable against entrepreneur relief. 

I hope this makes sense and would appreciate some help

Replies (7)

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By Eve 2206
23rd Oct 2012 11:55

I thought that to claim ER, the individual had to have worked for or been a director of the company for at least 12 months.

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By George Attazder
23rd Oct 2012 12:18

I think that...

... Eve's right.

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By User deleted
23rd Oct 2012 23:05

Thanks for your comments

I was wrong, apparently the person has been a director for a number of years.

So my query still exists. Can the shares be sold now for an amount (part of which will be determined at a later date) and still qualify for ER.

 

 

 

 

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By George Attazder
24th Oct 2012 11:41

Yes but...

... to the extent that there's any unascertained consideration the proceeds from the disposal of the shares is the ascertained consideration (whenever receivable) plus the value of the right to receive the unascrtained consideration.

When the unascertained consideration is ascertained and paid there is then a second disposal with proceeds of the amount so paid and a base cost being the value of the right used as disposal proceeds in the first calculation.

Only the first gain qualifies for ER.

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Replying to Briar:
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By User deleted
25th Oct 2012 15:43

My client wants the maximum for his shares in the most tax efficient way, albeit an element of the value is tied up in the ransom strip of land which may not be realised in cash for a few years. 

Therefore the buyer is unable to pay the full price for the shares now (1million plus half a million for the ransom strip)

is there a way this deal can be achieved in a tax efficient manner.

Any help would be appreciated

 

 

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By George Attazder
25th Oct 2012 16:42

If you know the total consideration...

... you can have one gain qualifying for ER, but the tax is payable now.

If the proceeds are payable by instalments spanning at least 18 months though, HMRC should allow you to pay the tax by suitable instalments  I haven't had cause to do that since we've had this Self-Assessment malarkey though, so I'm not sure how you'd actually achieve that in practice.

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By User deleted
26th Oct 2012 14:17

I was involved a few years ago with the sale of a clients business. Part of the proceeds was by way of a loan note which was redeemable in 7 years. I recall that the tax was not payable until the loan was redeemed and ER was allowed.

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