We have a director shareholder (Mr B) who owns 10% of A Ltd (a private limited company). The remaining 90% of A Ltd is owned by 9 other individuals (each with 10%).
Mr B was an original shareholder and purchased his share at par (say £10).
Mr B now wants to “bank” Entrepreneur’s relief on his shares, and intends to sell his shares to his own Ltd company (B Ltd), which he owns 100% of. B Ltd would purchase his entire shareholding of A Ltd (at full market rate), creating a loan account in the company (i.e. deferred consideration for the purchase of the shares). Dividends from A Ltd would be paid into B Ltd and Mr B then draw the money out against his directors loan account.
B Ltd may shelter some of the dividends and use them to buy investments, or distribute in full to Mr B, depending upon circumstances.
He would lose BPR and lose Entrepreneur’s relief on the eventual sale of B Ltd, but stands to significantly gain in the short run.
We anticipate that Entrepreneur’s relief would be available, and that it wouldn’t be caught under Transactions in Security (because of the excluded circumstances in CTM36830), but would be grateful for readers thoughts on whether this would be caught under any anti-avoidance legislation.
Thank you in advance.