s162 and buy back
Mr A, Sole Trader incorporates, say 5th April 2010. Only asset is goodwill, valued at £100,000. He sells £10,000 of the business to the new ltd (crediting DLA), and pays no CGT due to annual allowance.
On 6th April, he sells another £10,000 (crediting DLA) , and transfers the remaining £80,000 in exchange for 80,000 £1 shares, getting relief under s.162.
If on 6th April 2016 the company buys back 10,000 shares crediting £10,000 to DLA, and every year another 10,000 shares, will the shareholder be able to avoid CGT altogether by taking advantage of annual allowance each year?
Presumably s.219 will not apply for the first 5 years, and maybe even after (due to remaining connected). Is there a way around this? Maybe company can make a bonus issue to other shareholder, so Mr A has less than 30% control?
divisible goodwill
thanks for the helpful replies.
however, whilst s162 requires the entire business including all assets (except cash) to be transfered, that only restricts not transferring some of the business.
If 20% was transfered previously, than the remaining 80% can be transfered under s162, as it is not the "entire business".
Regarding dividing goodwill, to give an example of an accountant, within a typical accountant's business there are many sub-businesses which could be separated if necessary. For example, bookkeeping, payroll, company formations, audit, accountancy, tax consultancy. All of these are valuable on their own or collectively. If I decided to sell, say, my Payroll Beaurex, I could. Alternatively, I could sell the bookkeeping leg. So 5th April, sell company formations, 6th April sell payroll, 7th april sell the rest. No?
.
For what its worth you are going to an awful length to save a relatively small amount of tax.
I think your strategy would fail.
What are the commercial reasons for such a plan? The only reason for this would seem to be to take advantage of a £10k annual allowance. That is crazy. To save 10% tax on £100k.
You can not sell the goodwill in stages, it is either sold by the person or it is not.
Look to keep this simple and you will have a good enough deal at 10%.
By doing what you are doing you will lose Entrep. Relief, incur fees and have sleepless nights.