CGT on sale of shares in private ltd company

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Hello

My client is selling 10% of shares in his company for £100k to an investor and is then putting this money back into the company. Is there any relief other than Entrepreneurs relief he could claim against CGT? The company has applied for EIS but has not yet had this approved. 

Also my understanding is that the investor will have to pay stamp duty on the purchase?

Thanks for your help!

Replies (9)

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By Accountant A
26th Feb 2019 15:54

Who advised your client to structure the transaction in that way? In what form is the client "putting this money back into the company"?

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Replying to Accountant A:
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By hannahaston
27th Feb 2019 11:02

I believe he's taken it upon himself to decide this structure, he came in for a meeting and told me that this was what was happening! So was news to me.

He would be putting the cash into the company as a Directors Loan.

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Replying to hannahaston:
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By Accountant A
01st Mar 2019 12:28

hannahaston wrote:

He would be putting the cash into the company as a Directors Loan.

That's something, I suppose. Sounds like he has made a mess by not taking advice. I think your suggestion to refer him on is the best option.

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By Matrix
26th Feb 2019 16:15

Why doesn't the company borrow the money until the scheme is approved? Was the £100k loan from the Director (if that is what it is) taken into account in the valuation?

There is no CGT if no sale and no stamp duty on the issue of new shares, if these are the concerns then plan around them.

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By cathygrimmer
26th Feb 2019 17:13

Not sure if you are suggesting that the purchase of existing shares from your client is what the EIS application is for but EIS is only applicable in respect of shares that are subscribed for.

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Replying to cathygrimmer:
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By hannahaston
27th Feb 2019 11:09

My understanding of it is that if they had the EIS certificate then the investor would qualify for tax relief.

To be honest, I do feel this is over my head as I'm a small business with 80% of clients being sole traders and the rest small Ltd companies. I may pass the business on to someone else rather than mis advise him as I have limited knowledge on this.

I'm sure I'll get a few smart [***] replies so please don't shoot me down.

Thank you

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By Tax Dragon
27th Feb 2019 11:13

Your understanding is wrong, for the reason cathygrimmer has already given.

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Replying to hannahaston:
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By cathygrimmer
27th Feb 2019 11:40

As I said, the investor won't get EIS relief unless they subscribe for the shares. See here: https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/...
There are other conditions that must be met as well, of course, but they are irrelevant if there is no share subscription.

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By Ian Bee
27th Feb 2019 11:41

I assume that "applied for EIS" is an application for advance assurance.

Whatever else, you should advise the client to do nothing until you have the EIS assurance. And then it is only valid if you have provided all the information to HMRC.

From what you have set out, it is likely to be refused anyway.

You are right though to identify EIS as a specialist area and while it is a good idea, there are all sorts of unsuspected traps that can deny EIS to an investment.

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