Shares offered at discount to attract non-exec

Shares offered at discount to attract non-exec

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If two existing shareholders of a company sell some of their shares to a third party at a discount on market value (with market value being based on the cost per share of a recent subscription) in order to persuade him to come on board as a non-exec director what would the tax implications be?

I realise that the transfer may be treated as a market value transfer for CGT (which will effect the sellers) but would the discount be taxable as employment income for the buyer of the shares given that the shares are being purchased from existing shareholders and are not a subscription of new capital?

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By bggoose1
17th Jan 2014 17:01

Possibly yes

You have rightly identified that there may be some tax implications for the sellers. The value shifting would be something that I would look at in this context in addition to the straightforward disposal.  Turning to the position of the non-exec, the shares that he will be acquiring will be employment related securities as this legislation covers past, current and future engagements.  Therefore any acquisition of shares at a discount to market value will potentially give rise to a tax charge.  It may not however be that bad as presumably he is only being offered a small percentage in which case the value of the shares will be suppressed by a minority discount and also the fact that they will be shares in a private company.  The maths needs to be done but it may not be that big a problem. Why are the current shareholders selling him shares?  Why not let him subscribe for new shares.  ERS is still in point and value shifting could still potentially be an issue but the straightforward disposal disappears.

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