A client has been approached to sell 20% of the shares in his trading company, which he has held for more than 2 years, for a mixture of cash and 2.5% index-linked loan stock, redeemable after 5 years, issued by a private company. By way of background, that company, which is his major customer, wants him to continue running the business for the next few years, but with the option to buy the remaining 80% eventually.
The client will have to pay CGT on 25% of the gain realised in cash. With regard to the loan stock, I believe that if it is a Qualifying Corporate Bond, the gain is calculated at the time of sale of the shares, but CGT is not payable until my client cashes in the loan stock. Am I right?
Is this 2.5% index-linked loan stock issued by a private company to my client (and no-one else as far as I know), for which there is no secondary market, likely to qualify as a QCB?
Does it affect the position if my client has the right to redeem some of the loan stock each year (which would reduce his CGT compared with redeeming it in full in year 5)?