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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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 ?
The son gets to keep all his dividends and sale of shares money, I assume.
He won't be giving it back to dad.
Definitely want to consider IHT then.Yes the son will get to keep everything.
Otherwise why is the father doing this? Simply because he hates paying tax and would rather give his money away than pay some?
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.
What makes you think the son will qualify for ER?
I dunno as the OP claimed he would. "He" is ambiguous in his response.
Gifting to a connected person that is not their spouse.
Hmmmmm - https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14530
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.
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.
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.
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.