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MBO - does the plan sound right?

Under this scenario, could ER still be claimed on the sale

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3 employees are setting up a company to purchase 100% of the shares in a trading company from the current owner.

The deal will be funded partly by a loan from the bank to newco, partly by funds held in the trading co and then the balance (around 50%) through a loan agreement between current owner and newco.   This loan will be repayable over a 3 year period.

Presumably this arrangement won't affect the current owners eligibility for entrepreneurs relief?  He understands that the capital gain will be chargeable in the first year.

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22nd May 2019 18:32

Any thoughts please?

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By johnhemming
22nd May 2019 19:00

I am not an accountant, but I have in the past made a successful claim for ER. The accountants would probably give the sensible advice that you should get an accountant to advise.

These sort of things are really fact specific and you need to provide a lot more information. The forum is also not so much about free advice.

On the information you give I initially thought it would not have an effect, but it does sound a really complicated route of finance and it needs to be clear who is paying whom for what and I would not take the chance of doing this without some advice. If you are using funds actually from the business and a loan provided to the business then it has other risks. I am not an accountant and I don't think you have given enough information even for me to give you advice. It may have an effect, but that may arise from missing information.

ER is, of course, not the only issue. If the government increased the rate of CGT or even removed ER post a general election then the difference between 10 and 20% will seem a relatively minor consideration.

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