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CGT and share valuation

CGT and share valuation

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Private Limited Company originally with 2 issued shares.  A few years after incorporation,2 more shares issued and bought by the wives of both original shareholders with nominal value of £1.  This is a family company and now one couple is getting divorced.  The shares have been valued independantly for current value for husband to buy back from wife in divorce settlement.  What is the CGT payable on this valuation?  As share only bought for £1 but would be valued at much higher at the time, do I use current valuation less £1 or current valuation less market value at the time of issue for CGT purposes?

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By johngroganjga
20th Nov 2013 12:12

If the company is a trading company, and the transfer is to be made under a court order at the conclusion of the proceedings, the gain can be held over if both parties agree.

So you may not need to worry about the detail of the CGT calculation.  But if you do, the base cost for the wife's disposal is £1.

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By MJShone
20th Nov 2013 12:37

SEE CGT Manual at 67192

S165 TCGA 1992 holdover applies to the extent that there is no consideration. It might be thought that when one soon-to-be-ex-spouse gives up rights in exchange for something as part of the divorce settlement, that there's consideration. The Revenue accept that in certain circumstances (as alluded to by John Grogan) there isn't consideration for the purposes of s165.

However, you say the husband is going to buy the shares from the wife...

 

If there is a gain (ie if s165 does not apply) I agree that wife's base cost is £1 (assuming she subscribed for the share rather than bought it from a connected party).

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Replying to HuntFord:
By johngroganjga
20th Nov 2013 12:41

To be specific

MJShone wrote:

The Revenue accept that in certain circumstances (as alluded to by John Grogan) there isn't consideration for the purposes of s165.

To be specific, the circumstances in question are that, as I said, the transfer must be made under a court order (by consent or otherwise) at the conclusion of the proceedings. 

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By blok
20th Nov 2013 13:51

.

Q john

If no court order and transfer/purchase is not in tax year of separation (which will be likely), Am I correct in assuming that the only relief for H will be via both parties electing for gift holdover. 

Which, given the circumstances (divorce) would constitute a negotiation point..

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By johngroganjga
20th Nov 2013 13:56

Misunderstanding

No.  You misunderstand.

Leaving aside transfers before the end of the tax year in which permanent separation occurs, which are a different kettle of fish altogether, if there is no court order there is no entitlement to gift holdover relief as HMRC will not accept that there has been a gift.  So if there is no court order there is full CGT on a market value basis.

Hope that clarifies things.

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By karenoneill1
05th Feb 2014 15:39

CGT on "family co" shares on divorce

I'm a family lawyer, and CGT is often the least of a divorcing couple's concerns at the time I deal with them!  However, I have a similar case to the one referred to above, where the divorcing couple hold 25% each of a limited co worth circa £128k in total.  The husband is prepared to "give up" equity in the home in return for a transfer of the wife's shareholding to him and I'm hopeful for a court order by consent to that effect.  My understanding was that HMRC will still consider the transfer of shares at actual value (about £32k) even though there will be a court order (and decree absolute) and therefore a chargeable gain for CGT to bite on.  From reading John's post above though, it seems I may have this wrong and there may hold-over relief available...Can anyone tell me where I might find authority for this position please?

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By karenoneill1
05th Feb 2014 15:42

CGT on "family co" shares on divorce

Oh - and just to clarify - the husband and wife separated in 2012.  I haven't yet come across a case involving a CGT question where the parties are still in the tax year of separation!

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By johngroganjga
05th Feb 2014 15:51

Yes - if the transfer is made by court order HMRC will accept that no consideration has been received (see Coleridge's obiter in G &G and HMRC's response) and that gift holdover relief is available - provided of course that the company is a trading company).  PM me if you need chapter and verse.

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By karenoneill1
05th Feb 2014 16:07

CGT on "family co" shares on divorce

Thank you very much for the swift response John...I've now found and read ...

CG67192 - Gifts: hold-over relief: consideration (http://www.hmrc.gov.uk/manuals/cgmanual/cg67192.htm)

... and can see that this will apply in my case, so thank you so much for providing the trail to the guidance from HMRC.

From a family lawyers point of view, this is something of a grey area and its difficult to know where to turn for advice (and clients NEVER want to pay!).  Accountants and family lawyers are often trying to do the same things for different reasons, or different things for the same reasons!  I guess we all bring something different to the party!

I'll know where to turn next time then!!!!!  Thanks again.

 

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