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Tax Insider Tip: Husband And Wife And Entrepreneurs’ Relief
Tax Insider publishes monthly newsletters and reports.
Spouses and civil partners are entitled to their own entrepreneurs’ relief. Making use of this can potentially double the tax savings on offer.
Both must meet the qualifying conditions. In relation to the disposal of shares in a personal company, this means that each person must hold at least 5% of the shares with at least 5% of voting rights throughout the year ending with the date on which the shares are sold or the date on which the company ceases to trade. The individual must also be an employee or officer of the company or of a company in the same trading group.
Shares can be transferred between spouses and civil partners on a no-gain no-loss basis. Transferring shares a year before the disposal can ensure both parties meet the conditions and maximise relief. Shares can also be transferred to pass the gain from one party to another to maximise relief.
Example:
Owen and Rita are husband and wife and are shareholders in the family company. Owen owns 97% of the shares and voting rights. The remaining 3% are owned by Rita. The company has been very successful. They plan to retire and expect to realise a gain of £20m on the sale of their shares.
Their accountant advises Owen to transfer 47% of his shareholding to Rita on a no-gain no-loss basis and to wait at least a year before selling the shares. They take this advice and 18 months later sell the shares, each realising a gain of £10m. They claim entrepreneurs’ relief and each pay capital gains tax of £1m (it is assumed their annual exemption is utilised elsewhere). Their total capital gains tax bill is £2m. They both meet the employment condition.
Had they not transferred the shares, Owen would have realised a gain of £19.4m. Having claimed entrepreneurs’ relief he would pay capital gains tax at 10% on the first £10m and 28% on the remaining £9.4m – a bill of £3.632m. Rita would make a gain of £0.6m and as she would not qualify for entrepreneurs’ relief she would pay capital gains tax of £168,000 (assuming she too is a higher rate taxpayer). Their combined bill would be £3.8m.
Forward planning and transferring shares to Rita has saved them £1.8m.
This is a sample tip taken from our 136 page guide:
101 Ultimate Tax Strategies Revealed.
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