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Closing ltd co - gifting shares to reduce CGT?

Closing ltd co - gifting shares to reduce CGT?

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I have a client who wishes to close his ltd company. He suggested gifting shares to his son in order to reduce the overall tax liability (tax on dividends and CGT). His plan is to gift shares and then close the ltd co approx 3 months later (in order to take advantage of his son's CGT allowance) .Are there any potential pitfalls that he should be aware of? I don't have a great deal of experience with CGT so conscious of providing incorrect info which may come back to bite the client.

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RLI
By lionofludesch
02nd May 2019 14:04

How old is his son ?

Is he thinking of claiming ER ?

How much are the shares worth ?

Why can't he use his own CGT allowance ?

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Replying to lionofludesch:
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By Kevinmck14
02nd May 2019 17:16

Son is

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Replying to Kevinmck14:
RLI
By lionofludesch
02nd May 2019 17:28

Kevinmck14 wrote:

Son is

Right.

Well, that helps.

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Replying to lionofludesch:
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By Kevinmck14
02nd May 2019 17:32

Sorry replying via mobile and not the most functional device haha

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Replying to lionofludesch:
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By Kevinmck14
02nd May 2019 17:42

Son is 23. Yes he plans to claim ER. He will also be using his allowance as some shares will be retained. Figures involved aren’t huge;

Approx cash in bank after final CT paid: £40k

As it stands, 75% of shares owned by client, 25% by girlfriend. Current plan to distribute dividends in order to leave £25k cash left, then Distribute remainder as capital gain. 75% to client (£18,750) and 25% (£6,250) to girlfriend. Girlfriend won’t pay any CGT as gain is under allowance value. By claiming ER the client will pay 10% CGT on any gain between the CGT allowance threshold and £18,750 (which isn’t a great deal anyway).

However, by gifting shares to son (using gift hold-over relief) he will reduce the overall tax bill in 2 ways (I think!)
- less tax on dividends as client is higher rate tax payer and son is basic rate
-Less CGT as son can take advantage of his own CGT allowance

Obviously if I’m out of my depth I will pass on this but it’s a good opportunity for me to gain some more knowledge in this area.

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Replying to Kevinmck14:
RLI
By lionofludesch
02nd May 2019 17:52

The son gets to keep all his dividends and sale of shares money, I assume.

He won't be giving it back to dad.

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Replying to lionofludesch:
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By Kevinmck14
02nd May 2019 18:03

Yes the son will get to keep everything.

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Replying to Kevinmck14:
Stepurhan
By stepurhan
03rd May 2019 10:52

Kevinmck14 wrote:

Yes the son will get to keep everything.

Definitely want to consider IHT then.

Otherwise why is the father doing this? Simply because he hates paying tax and would rather give his money away than pay some?

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Replying to Kevinmck14:
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By Adam12345
02nd May 2019 18:08

What makes you think the son will qualify for ER?

Dividends in anticipation of a winding-up are added back when determining the £25k threshold for a informal liquidation - on the basis of the facts provided, you will have to go through the formal liquidation process to get CGT treatment.

Best to get some advice as you say.

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Replying to Adam12345:
RLI
By lionofludesch
03rd May 2019 09:35

Adam12345 wrote:

What makes you think the son will qualify for ER?

I dunno as the OP claimed he would. "He" is ambiguous in his response.

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Stepurhan
By stepurhan
02nd May 2019 14:33

Gifting to a connected person that is not their spouse.

Hmmmmm - https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14530

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Replying to stepurhan:
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By Kevinmck14
02nd May 2019 17:41

Gift hold-over relief would shift any gain to son would it not?

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Stepurhan
By stepurhan
03rd May 2019 10:51

Only if both transferor and recipient agree.

Has the son been advised on the implications for him so he is giving that consent in an informed fashion?

You might also want to consider the IHT effects, since this is also passing some of father's estate to his son.

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By Accountant A
02nd May 2019 15:09

Kevinmck14 wrote:

I don't have a great deal of experience with CGT so conscious of providing incorrect info which may come back to bite the client.

You need to pass on the client to someone with sufficient knowledge. Don't try to do it yourself. It won't come back to bite your client; it'll come back to bite you - and your PII may not pay out if you have been advising outside your knowledge/experience.

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nsa newquay
By adam kay
02nd May 2019 16:04

I agree with Accountant A. There's companies out there that specialise in CGT and only charge your client if they are successful in reducing the CGT bill. Their fees aren't extortionate and they will be best suited to help your client if you don't have the necessary experience/knowledge. In my experience, clients are more than happy to be referred to a specialist in a situation like this if it will ultimately reduce their tax bill and ensure they are receiving the most relevant advice.

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My photo
By Matrix
03rd May 2019 10:02

You don’t need to be a CGT expert to read the rules on entrepreneur’s relief. The son clearly doesn’t meet the conditions but the rate is still 10% if the gains over the allowance fall into the basic rate band.

But see Adam12345’s post - what you propose doesn’t work since the reserves exceed £25k.

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