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Private company share buy-back...

Tax impact on remaining shareholders

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If a company buys back 49% shares owned by a shareholder, is there any immediate tax implications for the remaining shareholders? I cannot see that there is but I may well be wrong as I have no experience in this area. In my head, I'm thinking that it's very possible as these 51% shareholders have now became 100% shareholders.

I'm passing this onto someone suitably experienced, but I was eager to know for my own benefit for future reference.

Also, in terms of the companies act, section 18, what's the main things to adhere to in relation to a share buy-back? I've read the relevant section but most of it seems like double Dutch to me!

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By bernard michael
21st Apr 2022 09:53

Make sure the Companies House forms are completed. The tax problem is for the ex shareholder

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By nrw2
21st Apr 2022 10:01

The tax problem can also be for the existing shareholders, depending on the circumstances (eg EIS being withdrawn https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/...).

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By Kevinmck14
21st Apr 2022 14:17

So just ensure that SH03 and SH06 are completed. and stamp duty paid? It's not an exempt distribution as the shares have only been held for 3.5 years so no need for clearance from HMRC?

At present, the holding company does not have enough distributable reserves to make the purchase but the plan is to pay interco dividend from subsidiary in order to provide funds....would that be be an ok way to go about this?

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By nrw2
21st Apr 2022 09:59

The unhelpful answer is 'it depends', as is typical with tax.

If, for example, the remaining shareholders originally invested under EIS then relief may be withdrawn.

If, for example, a minority shareholder becomes a majority shareholder there may be tax considerations.

Tax aside, share buybacks are typically straightforward to execute provided careful attention is paid to compliance. The process is common and well documented with a little digging.

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By Tax Dragon
21st Apr 2022 11:23

One of the "it depends" points is whether the buy-back is part of a scheme or arrangement (or more generally something has been done as part of a scheme or arrangement) the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

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By Kevinmck14
21st Apr 2022 11:58

The selling shareholders are retiring and want to cash in the majority of their assets

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By The Dullard
21st Apr 2022 12:05

You need to be clear how the share purchase by the company benefits its trade, although there is a "textbook" way of dealing with this.

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By Kevinmck14
21st Apr 2022 14:12

Interested in what this "textbook" way is :)

The business is suffering due to conflicts between the shareholders, that's the long and short of it. It's having a detrimental impact on the business

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By The Dullard
21st Apr 2022 14:23

Textbook where you have a shareholder that wants to leave is to say that it would be detrimental to the business for the shares to be passed to a third party, put simply. But if there's already conflict and it's in everybody's interest then all the better.

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By Tax Dragon
21st Apr 2022 15:59

Are you talking about the taxation of the departing shareholders (income distribution in this case)? OP's concern was the remaining ones (and presumably whether the company had any reporting obligations).

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By Matrix
21st Apr 2022 18:53

Has there been a transfer of value? Did they own 51% of a business worth, say, £100k and now own 100% of a business worth £51k?

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By Kevinmck14
21st Apr 2022 19:08

No I don’t think there has been a transfer of Value. The sellers are selling back 49% of shares to the company, the remaining shareholders will now essentially jump from 51% to 100%. But the business will be valued the same (less the cash used to fund the buy back). I’m possibly misinterpreting what you mean by “transfer of value” though

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By Matrix
21st Apr 2022 20:35

Sorry I think I may have meant an uplift.

This is discussed in the thread below but the facts are different as the sale is not at MV.

I don’t think the shareholders have benefitted in your client’s case but it doesn’t mean there is no form filling.

https://www.accountingweb.co.uk/any-answers/share-buy-back-and-ers

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