Purchase of own shares - Trade Benefit test

Purchase of own shares - Trade Benefit test

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Company owed by Mum, Dad and Son.

Mum and Dad are to retire/withdraw and wish to take 40K each from the company bank.

Can take some of this in 14/15 and 15/16 as unused BR band. Which leaves just 13K each which would lead to 6.5 combined income tax as HR.

Could take it instead as POS, with minimal CGT, but the following is a snag.

1) Mum and Dad have been advised to stay on as directors (insurance reasons so their solicitor says - something to do with an old potential issue)

2) Mum and Dad to own shares entitling them to a fixed income of 5K each for a year or two (or longer?)

3) Mum and Dad to be paid consultancy of 10K each for a year or two (or longer?)

The above would of course be advised in any HMRC clearance, as would the15/16 income dividends, but I wonder whether anyone thinks it all means the Trade Benefit test will not be met?

Replies (4)

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By gbuckell
12th Mar 2015 10:53

Doubtful

1. HMRC does not like vendors staying as directors. I had a case once where I felt there was a good commercial test for the vendor staying as a director for a while but HMRC Clearance Team would not accept it. You may succeed on this point - your facts sound a bit better than mine - but I doubt it.

2. This is probably okay - suggest you conert some of the ord shares into fixed rate pref shares.

3. This should be okay.

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By HeavyMetalMike
12th Mar 2015 11:38

Thank you.

The director thing is because of a potential insurance or liability claim for something that happened whilst Dad was running it as a sole trader and this claim came to light circa 18 months ago.  Why being a director will mitigate any personal claim I do not know.

Yes we're going to convert. Mum and Dad will actually own 10% each of the capital,10% voting (????), but fixed income. Son owns 100% of the ords which entitle him to 80% of the capital.

Would you "should be okay" if the consultancy didn't end in 2 years?

 

Thanks

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By gbuckell
12th Mar 2015 11:49

Consultancy

I doubt that consultancy continuing past two years will cause a problem. Suggest that you are vague about the length in the clearance application.

On the directors point, if you are to stand any hope you need a very clear explanation from the solicitor about why he is recommending they continue as directors.

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By HeavyMetalMike
12th Mar 2015 11:51

Thank you. Now I just need to sell it to the client- only 6K saving after all, not massive sums.

Many thanks

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