Client is a micro entity with 2 directors who each own 50% of the issued share capital. The relationship between the directors is brother-in-law.
Company was set up 5 years ago (was previously a small partnership). This was initially a part time / weekend business, with both directors working full time in other jobs. Shortly after incorporating 5 years ago, director 1 was made redundant and decided to go run the business full time, with the intention of building it up. From that point onwards, director 2 took a back seat and has not had any real involvement since.
5 years on, the business is sustaining director 1 who takes a salary. The company makes modest profits and doesnt pay dividends.
Director 1 has had a discussion with director 2 and they have agreed that director 2 shall leave the company, ie, he will resign as director and 'give up his shares' for no financial consideration.
I have been considering the options. Transfer of shares from director 2 to director 1 would not be advisable, as this would fall within the ERS regs with director 1 obtaining shares. Yes, the reason could be friendship, but I suspect it is in reality it is a reward for input and is taxable at MV.
Also, Brother-in-laws are related parties for CGT purposes so market value would apply.
I was thinking that the simplest way would be a company purchase of own shares, for £1. The shares could then be cancelled and director 1 becomes the sole owner by default. I am now thinking that, although the connected parties rules don't apply to POOS transactions, TCGA 1992, s17, could apply but am not sure. If so, then director 2 will have a market value disposal for CGT purposes.
Questions are a) opinions on whether s17 would apply and
b) am I missing anything?
It is a very long time since I've dealt with PooS transactions but it seems to be the simplest way of achieving the objective, ie, director 2 wants out and doesn't want any payment for his shares.
Thanks in advance