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Gifting whole company

Gifting whole Company

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Client runs a company and has full time job. New role had contract clause that client can not operate a business where there is a conflict of interest and this is. Client wants to give shares to trusted friend to resolve the ownership issue but question is can you gift 100% of shares and use gift relief or is this actually a sale for CGT purposes given that the whole company is being disposed? 

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By johngroganjga
28th Aug 2019 08:45

From what you say, to comply with the terms of his new employment contract he does not need to dispose of his shares in the company, he just needs to cease to operate the company’s business. You don’t say anything about the business and how it will operate after the transfer of ownership in it.

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By davebrown123
28th Aug 2019 09:20

Thanks for your response, he wants to retain company through his friend and take back ownership in a few years. Client is in forces and exits in a few years. Ownership is deemed conflict of interest in this case and also stipulates that wife ownership will also be deemed conflict. Idea is gift to sympathetic friend to remove ownership and conflict and get shared back in a few years.

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Replying to davebrown123:
Stepurhan
By stepurhan
28th Aug 2019 09:37

davebrown123 wrote:
Ownership is deemed conflict of interest in this case and also stipulates that wife ownership will also be deemed conflict.
As john (and others) have already said, surely the deemed conflict is because the company is active. If it ceases to be active, then surely the conflict also ceases. If you think not, why do you think not.

It's not just a matter of trust either. The friend may genuinely be trustworthy now, but what if they have a falling out? What if the friend dies or becomes bankrupt? This is an odd plan.

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By itp33asso
28th Aug 2019 10:55

How confident is your client that the "sympathetic" friend will give him back his business when he exits the forces??

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By itp33asso
28th Aug 2019 10:55

How confident is your client that the "sympathetic" friend will give him back his business when he exits the forces??

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By itp33asso
28th Aug 2019 10:55

How confident is your client that the "sympathetic" friend will give him back his business when he exits the forces??

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By itp33asso
28th Aug 2019 10:55

How confident is your client that the "sympathetic" friend will give him back his business when he exits the forces??

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By Tax Dragon
28th Aug 2019 11:07

I think that point's been made.

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Psycho
By Wilson Philips
28th Aug 2019 09:04

A gift is a gift whether of 1% or 100%.

But, assuming that there is some value in the company one has to question the wisdom of giving away control, never mind the whole thing. In my experience, such action can very quickly change the status of “trusted”.

And as John notes above, operation of a business does not require ownership - is client also going to resign as director?

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By davebrown123
28th Aug 2019 09:22

Yes, resign as Director and gift shares. Appreciate the point and have also advised that this might be fine now!

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By Tax Dragon
28th Aug 2019 09:18

I'm not sure whether this is playing devil's advocate or explaining the point of the question but...

if it's a gift, why do you need to trust the giftee? I've given money to street dwellers. I hope they'll use it for the purposes they tell me (shelter, or a bus ride to the shelter, usually - sometimes a cup of tea). But it's a gift - it's up to them.

If you are "trusting", are you "gifting"?

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By davebrown123
28th Aug 2019 09:25

What’s has to happen is that client cannot be director or shareholder in company where there is a conflict and neither can wife.
Client wants to retain company hence no choice but to gift shares because client cannot own then the being that they are gifted back when conflict no longer exists.

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Psycho
By Wilson Philips
28th Aug 2019 09:46

That's the point exactly - he needs to trust the giftee because he's expecting the shares to be handed back. Which, as you suggest, begs the question as to whether it's a genuine gift.

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By Cloudcounter
28th Aug 2019 09:56

It seems to me that it isn't a gift at all, but that he's transferring the shares to a friend as bare trustee for his interests. I don't see how it can be a gift if there is an express or implied condition that he gets them back in future.

How that fits in with the requirements of his new employer is a separate issue.

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By johnhemming
28th Aug 2019 09:47

This seems to be the key thing. If the company is in conflict with the new employer then all of these transactions will be in public and it does not seem to me to resolve the question of conflict of interests particularly as it is arguable that the friend is acting as a trustee.

My suggestion would be to make sure that the new employer is fully aware of the details and has signed them off to avoid any problems there.

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By davebrown123
28th Aug 2019 10:02

Ok thank you so given employer won’t sign this off because it’s a conflict and that transferring shares is not really a gift because client wants them back, if the transfer went ahead would it in fact be a straight capital gain requiring share valuation and deemed consideration? Client has no choice but to relinquish ownership if he is to retain job.

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By johnhemming
28th Aug 2019 10:15

What he probably needs to do is to sell it rather than expect it to come back at some stage.

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By chicken farmer
28th Aug 2019 10:56

If the transfer was to go ahead, there would not be any CGT as the friend would be holding the shares as a bare trustee - there would be no transfer of BENEFICIAL ownership.

You would also need to have the terms of the transfer well documented as it the friend were to die, his executors may well assume that the friend had owned the shares beneficially and seek to distribute them to the beneficiaries of the estate.

"What a tangled web we weave …."

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By Tax Dragon
28th Aug 2019 11:11

Well... just as CGT is determined by beneficial ownership, I'd venture that interests (which may be in conflict) are too. So achieving the desired outcome vis-à-vis the conflict of interest requires the transfer of beneficial ownership and that implies a CGT event.

It also means that the shares would be in the estate of the friend.

(Is it me, or are friends turning up in a lot of threads at the minute?)

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Hallerud at Easter
By DJKL
28th Aug 2019 11:19

They may be replacing the fellow in the pub in popularity on A Web or even supplanting the accountant of various posters (The one who is of course always on holiday at the time the query arises )

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By Tax Dragon
28th Aug 2019 11:33

I do wonder about ERS... presumably the friend would take on the directorship too? Maybe we'll see him or her turn up with a "what happens if I get gifted a company?" question.

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Replying to davebrown123:
Psycho
By Wilson Philips
28th Aug 2019 12:05

Assuming that a CGT event does arise there is always the possibility of a holdover election, avoiding the need for a formal valuation (and avoiding any immediate charge to CGT).

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By Tax Dragon
28th Aug 2019 12:28

Wilson Philips wrote:

… avoiding the need for a formal valuation...

We may have to discuss that point further if the friend turns up (depending on the answer to jcace's question).

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Psycho
By Wilson Philips
28th Aug 2019 12:58

I'd be interested to know what in particular you think might need to be discussed.

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By Tax Dragon
28th Aug 2019 13:20

It depends what the friend tells us (as I think we'll glean no more from this OP). But, if it's that s/he'll be given a job operating a company, and be given ownership of that company (by someone connected[*] with it), the second may be deemed to be by virtue of the first... it might need to be discussed, anyway.

[*] I can never remember definitions, and looking them up before the friend does turn up seems overly keen. I would hazard a guess though that a 100% shareholder meets the relevant conditions in the relevant definition.

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By chicken farmer
28th Aug 2019 17:02

But, on information we have been given, there is no CGT disposal as there will have been no transfer of beneficial ownership.

This is the only saving grace of what seems clearly a scam intended to deceive the new employer.

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By Tax Dragon
28th Aug 2019 17:48

You're likely correct, but it's certainly either or. Either the employee is lying to the employer (and the OP may even be conspiring to deceive if s/he continues to advise), or both transfers are taxable. CGT can be held over, income tax can't.

I prefer certainties over likelies, hence my comments in this thread.

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By chicken farmer
28th Aug 2019 18:36

So do I, but I think its certainly a scam!

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Psycho
By Wilson Philips
28th Aug 2019 19:01

Which is why I started my post with "Assuming that ..." Perhaps "If ..." would have been better.

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By bernard michael
28th Aug 2019 10:05

I'm slightly confused.
Does the company have assets or Intellectual Property that have to be preserved ?
Otherwise why does he want to keep it and reactivate in several year's time ?

I agree with the other comments re falling out/death/bankruptcy of friend

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Hallerud at Easter
By DJKL
28th Aug 2019 10:06

Maybe what politicians do- the blind trust- could be a solution; if it is good enough for our elected representatives.

https://www.theguardian.com/politics/2017/jan/10/theresa-may-urged-to-di...

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JCACE
By jcace
28th Aug 2019 12:06

"New role had contract clause that client can not operate a business where there is a conflict of interest and this is."

Who is going to operate the business if the shares are transferred?

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By justsotax
28th Aug 2019 13:40

so basically client is going to give away company with expectation to be given it back in same state. Presumably maintaining it throughout albeit without being remunerated but on being gifted it back will have a nice little nest egg in the form of retained profits that haven't been drawn down, except for the little bit passed to 'friend'.

Nope I can't see any conflict of interest as a result of that....sorted!

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By paul.benny
28th Aug 2019 16:25

Conflict of interest prohibitions are usually generalised - I can't do other accounting work while working for your practice. But you wouldn't (couldn't) limit my spouse's work, and probably wouldn't be too bothered if I did a wedding photography at weekends.

This restriction seems to result from the client's specific new role: perhaps he runs a business supplying army uniforms and the new role is military procurement.

You need to get the legals sorted first and then work out the tax consequences.

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