Can somebody confirm or otherwise the following please:
I buy shares (70%) in company for £200k, I then set up a holding company via share for share. If I then sell these shares for£250k, the company will pay CT at 20% on the £50k gain, as SSE does not apply (not a trading company after sale)
If I then want to liquidate the holding company to extract cash, will I pay10% CGT on the £250k (less AE) or the £50k (Less AE)?
I am a Director of both companies and have owned shares for more than a year
Replies (3)
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You say if "I" sell the
You say if "I" sell the shares, but I assume you mean that the holding company will sell its shares in its subsidiary.
If so, yes the holding company will pay CT on its gain, which will be roughly as you set out assuming SSE not available.
If you then liquidate the holding company and extract the cash, you will receive presumably about £200,000 (i.e. sale proceeds £250k less CT £50k) and as that is presumably the CGT base cost of your shares your gain is £Nil.
PS (EDIT) Yes of course the liquidation proceeds are £240k, not £50k as the tax on £50k is at only 20% not 100%! Apologies.
Hang on
If you buy shares for £200K (assuming £200K is their MV) and immediately put those shares under a holding company by way of a share for share exchange, then your shares in the holding company have a base cost of £200K, as do the holding company's shares in the subsidiary.
If you don't do it immediately though, the holding company will acquire the shares at the market value at the time of transfer, but your shares in the new holding company will have a £200K base cost.
In both cases, there will be stamp duty at ½% on the value of the shares being sold to the holding company. At £200K, that's £1K.
If Holdco then sells the shares for £250K, having no other business, SSE will not apply, and assuming the base cost is £200K, it will have a £50K gain. The CT on that will only be £10K.
So, it will have £240K to distribute on liquidation, giving the shareholder a £40K gain. £11K (but let's call it £10K) will be covered by the AE, and the remaining £30K will attract ER, and be taxable at 10% assuming that:
the subsidiary was a trading companythe shares (subsidiary + Holdco) were held for a year after the original acquisition of the subsidiarythe individual was an officer or employee of Holdco for the year up to sale.
So you have £3K CGT and have paid £1K stamp duty, out of your £240K final receipt, leaving you with £236K
If they had been held personally and you had been an officer or employee of the company for the qualifying period, you'd have paid the same amount in total in CGT, but it would have been out of £250K proceeds (as there's no CT), so you'd have been £10K better off.
SSE
If the holding company is liquidated shortly after selling the sub then SSE is potentially available notwithstanding the fact that the holding company itself is not trading immediately after the sale.