I have a client Mr X who is about to sell his 100% shareholding in A (sole director) to co B in which he is a director and 40% (largest) shareholder. X will continue as director of A and run it.
The sale will be c£1m of which £250k paid up front then 10% of turnover until the £1m is hit, which is expected to be about 9 months. (I'm happy that this is a fair value for the company). The sale however will be slightly short of the 2yr threshold for ER. I had thought of having the agreement so there were large pension contributions and a lower sale price, but he has used his current and previous pension limits.
My question hd been more general than this ... what happens re the CGT liability with deferred consideration? Will he have to pay the entire CGT now despite only receiving 25% of the cash?
Is there anything that I can suggest to reduce what will be a large CGT bill? He has a long term girlfriend but is unmarried so no inter-spouse transfer available.
Thanks.
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Will he have to pay the entire CGT now despite only receiving 25% of the cash?
If he has zero base cost and a £1m gain and is eligible for ER (BADR?), is that not a CGT liability of 10% = £100,000? He’s getting £250,000 cash. Or am I completely missing something??
EDIT: Apparently I am missing something. Reread “The sale however will be slightly short of the 2yr threshold for ER” so no relief available? Any reason why the sale had to be completed with such alacrity?
Still struggling to see why he won’t have the cash to pay the tax when it’s due, assuming, of course, the deferred consideration is paid.
Same principle applies - he's getting more than enough cash to cover the tax bill. Which means of course that payment by instalments is unlikely to be available.
Not a huge amount of info being given but I'm wondering if TiS has been considered.
Are any of the holders of the other 60% of the shares in B connected with Mr X? If so, TCGA 1992, s 37 might also be in point.
Has the contract for sale been exchanged? If not is it possible to create a conditional contract, where an obligation on X exists and X should have no problem fulfilling it? As CGT disposal date is the date of exchange of an unconditional contract or the date a conditional contract becomes unconditional, you may be able to shift the sale date to two years for BADR.
You seem to be missing the point that TiS may well be an issue here. (It might not, but it might be worth canvassing HMRC's thoughts on the transaction.)
I'm not sure ALISK knows what TiS means.
I don't Suppose you could Consider making the Point more Cleary?
:¬)
One thing that is notable by its absence so far is any indication of the purpose of the transaction.
If you don't think it's an issue, then no real harm in asking HMRC for clear(y)ance then, is there?
"It might be worth mentioning that X doesn't draw any income from A, other than the £2k and £40k pension limits. It's a cash cow with a bulging bank balance."
But perhaps not in the clearance application.
It seems that the milch cow is extinct or, at least, on the verge thereof. Out competed by the cash cow, which has the highly effective evolutionary advantage of alliteration. If anyone is interested in forming a society for the protection of these now very rare beasts if it is not already too late please indicate your willingness to join. Also if anyone has seen one in the wild in recent years please say when and where.
Have you considered an option to sell next April when he qualifies for BADR, assuming he remains a director or employee?