Tax implication on Issue of new share

Tax implication on Issue of new share

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I am concerned about the fact that the share being bought for £1 now is not really worth £1, but cant quite get my head around the effect of that.
Thanks for any help.
Janniehr

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By wdr
25th Aug 2006 13:16

You do need professional advice. There are CGT and IHT issues, b
as the shares are to be issued to a family member. The special exemption of ITEPA s421B(3) may therfore apply.

That still leaves an immediate CGT charge, which could be avoided if the company issues another share to the current shareholder by way a bonus issue, who gifts it to the family member concerned subject to a holdover eoection.

If the potential CGT is not large, then perhpas with full Business asset taper relief, the CGT on the gift-which is what this proposal clearly is- will be modest.
The tranasaction , whichever way ity is structured, is also a transfer of value for IHT, which should be a PET[no tax provided the existing sahreholder survives seven years].

If the existing share qualifies for Business property relief [BPR] for IHT, and provided it has been held for at least two years, then no IHT would be payable even if the donor does not survive seven years provide the family member who gets the share still holds it at the date of death within the seven years and it continue to qualify for BPR .

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By aidan.sergent
25th Aug 2006 09:55

Be afraid...be very afraid
Janniehr, please take care and take proper professional advice before issuing a new share in these circumstances. You are proposing to issue a share for less than its worth. The likelihood is that the difference between what is paid (£1) and the real open market value (???) will be treated as remuneration, and taxable as such.
You therefore need to get someone who knows about these procedures to do a valuation that wil stand up to scrutiny.
The consequences of getting this wrong, or doing it anyway without costing the consequences are not worth it. You must find out what the cost implications are first.
It would also be reportable on Form 42 next year.
There may be better ways of arriving at the right solution, such as the existing shareholder increasing his/her holding and then making a gift of part of the holding, but this needs to be based on the facts.
I repeat, get proper advice before doing anything.

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By Malcolm Veall
30th Aug 2006 16:40

Famliy? - not in heading
There is no mention of family in the posting that the link from the newswire takes one to. Presumably it is mentioned in the title in the Any Answers Index?

Can somebody at AccountingWeb sort this out?

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