Company Buy Back of Own Shares

Company Buy Back of Own Shares

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 A client who works in a senior managerial position is to sell his shares back to the company for whom we don't act.  His shareholding is just over 2% of the total. He paid nothing for these shares and has been offered £75,000 by the company to buy them back.  The legislation on this confuses me does the company have to obtain clearance and will it be taxed as a chargeable gain or a distribution on my client. If CGT can I advise client to transfer some of these shares to his wife prior to sale.

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By George Attazder
24th Sep 2012 23:41

Send the client to someone less confused

Is the company an unquoted trading company?

Is the company buying the shares for the benefit of its trade?

Has your client owned the shares for at least five years?

My guess is that (1) the answer to at least on of the above questions is no, and (2) it won't be taxed as either a chargeable gain or a dividend.

I can safely say though that transferring shares to the wife doesn't jeapordise CGT treatment in the unlikely event that it applies.

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Replying to lionofludesch:
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By pat27
25th Sep 2012 07:11

It is an unquoted trading company and client has owned the shares for less than five years.   I don't know if company is buying the shares for the benefit of it's trade as we don't deal with the company.  I suspect some kind of management buy out

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By LyneT
25th Sep 2012 09:22

The tax position of the company does not affect your client so I would foget about that.

From the point of view of your client it is clearly a capital gain.  He will not get ER as he has not got the required holding, so get him to transfer some to his wife.

If the share were give to him in an unapproved scheme, then it is likely that he will have paid some tax when he acquired the shares, and he will get relief for this when he sells them.

If the shares were given to him as part of an approved scheme (although it does not look lik it) then CGT will be payable on the whole lot as he has no acquisition costs. (Less AE of course)

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By blok
25th Sep 2012 10:18

.

what am I missing?

the amount receivable from the company is a distribution and taxable as a dividend.

the payment is only capital if the conditions apply for CPoS (which they don't)

 

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By George Attazder
25th Sep 2012 10:23

That's incorrect Lynne

It's the company that's buying the shares.

So the excess of the amount being paid, over the amount subscribed for the shares (or treated as subscribed for the shares - which ought to equate to the amount previously charged to tax as employment income) is a distribution (and, subject to S.447 ITEPA 2003, subject to tax as a a distribution) by virtue of S.1000(1)B of CTA 2010, unless S.1033 applies.

S.1033 doesn't apply, because the condition of having held the shares for 5 years in S.1035 hasn't been met.

So that excess sum is taxable as income, and I think HMRC might look to tax it as employment income under S.447 ITEPA, rather than a distribution.

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By LyneT
25th Sep 2012 13:20

I went out this morning to a meeting and realised what I was referring to was unapproved options.

You are both perfectly correct and I apologise.

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