incoporation relief

incoporation relief

Didn't find your answer?

Been looking through the legislation but havent been successful in finding an answer.

So say a business incorporates, business valued at 10, 000 all conditions have been met for IR.

Is there anything stopping someone taking £1 in share capital and 9, 999 in share premium?

Replies (12)

Please login or register to join the discussion.

avatar
By User deleted
09th Sep 2014 14:03

Effectively, you have just said they will be taking £10,000 in shares.

If there was £10,000 share capital and £0 premium, the effect would still be £10,000 in shares.

 

Your suggestion could be done such that there are 100 1p shares, or 1 £1 share.

Equally, my alternative could be done as 1,000,000 1p shares, 10,000 £1 shares or 1 £10,000 share.

Thanks (0)
Portia profile image
By Portia Nina Levin
09th Sep 2014 14:10

Eh?

You can take just one 0.00001p share if you want.

It will just be that that share will have a value of £10,000 and a base cost of whatever the base cost of the chargeable assets in the unincorporated business were.

Thanks (0)
avatar
By martinscutt
09th Sep 2014 14:27

Confusing tax and accounting here

Tax does not care as PNL (like the name) says the base cost is the same whatever you do

Accounting does not care either, it is what it is, a single £1 issued at a premium, but why you would want to tie up £10k into one share is beyond me. 

You can look at Company law and see if there is something that stops subscriber shares being issued at a premium, but I honestly don't know off hand nor care particularly, as I have never seen it and would never recommend it.

Thanks (0)
avatar
By andy4151
09th Sep 2014 15:07

The reason for the question is that if a person holds £1 in share capital and the rest in share premium. It is far easier to issue new shares and dillute the majority shareholding. Easy way to transfer ownership to another person to avoid capital gains/IHT

Thanks (0)
Portia profile image
By Portia Nina Levin
09th Sep 2014 15:14

Oh look

Somebody who does not know about TCGA 1992, section 29, and does not understand IHT.

Thanks (0)
avatar
By MSD1968
09th Sep 2014 16:18

Value shifting
Isn't it amazing how often this comes up on AWeb? If someone has found a way round this without troubling their PI insurers, they are much more clever than I.

Thanks (0)
avatar
By andy4151
09th Sep 2014 16:25

Back to the drawing board

Thanks (0)
Replying to johnhemming:
avatar
By MSD1968
09th Sep 2014 16:30

Been there

andy4151 wrote:
Back to the drawing board

There is no space left on my drawing board!

Thanks (0)
avatar
By andy4151
09th Sep 2014 16:37

Haha. Could the following apply. Is apply IR as normal. Then for the individual to give shares to another person. However, they will have to restrict the gain so they never make a gain above annual exempt amount. This way shares can be tfred at market value.
In practice would take years if company is of any meaningful value as only have 11k annual exempt amount per year. Suppose could consider giving half to spouse so double the annual exempt allowance to play with.

Thanks (0)
Replying to Learningvfast:
avatar
By User deleted
09th Sep 2014 16:42

That is how

andy4151 wrote:
Haha. Could the following apply. Is apply IR as normal. Then for the individual to give shares to another person. However, they will have to restrict the gain so they never make a gain above annual exempt amount. This way shares can be tfred at market value. In practice would take years if company is of any meaningful value as only have 11k annual exempt amount per year. Suppose could consider giving half to spouse so double the annual exempt allowance to play with.

 

That is how we have been doing it (with spouse also)

CGT is covered

IHT is irrelevant unless death within 7 years

 

We had to get advance clearance from HMRC - they even told us we had overvalued the shares at the time!

Thanks (0)
avatar
By andy4151
09th Sep 2014 16:48

Assume stamp duty is exempt on gifts?

Thanks (0)