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Tax implication on transfer of shares

Tax implication on transfer of shares

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Can you please tell me the tax implications for the transfer of shares in a private limited company.  There are three directors and they all hold 10,000 shares already between them.  One director who is the majority shareholder of 5,500 shares now wants to gift 2,000 of his shares to the other directors.  The shares are valued at £5 each and for CGT the gain is under the annual exemption and no capital gains tax is due.  As far as I can see the only tax which may be due is inheritance tax if the director who gifts the shares dies within seven years.

Or would there be implication for income tax as this is an employment related transaction?

The director is also considering selling the shares to the other directors.  Is there stamp duty to pay?  

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By Matrix
25th Sep 2015 19:54

If there is nil consideration then nil stamp duty.

Are they family members?  If so there is an exemption in the ERS rules.

 

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By qhas
26th Sep 2015 12:21

Shares
Is he selling or gifting ? The tax implications are different for each scenario

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By BBK
26th Sep 2015 12:57

Shares

Many thanks for your comments

 

The directors are unrelated.  He is thinking of gifting the shares but also wants to know what the tax implication are if he were to sell them.

The business was transferred from a sole trader in the previous year and goodwill was estimated at £50K.  The business is doing well and giving the shares a nil value seems not right.  The director thinks, as the company has been going for only a year that the £50K, would be a fair value of the company when the shares are transferred.  But if you think otherwise please advise.

 

 

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By qhas
26th Sep 2015 16:16

Share valuation
If, as you imply, the value of the company has not increased since acquisition them he will be selling his shares at the same price as he bought them. So no CGT but stamp duty will apply.

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By BBK
28th Sep 2015 09:08

Thanks Qhas,

I assume if he would gift the shares, no stamp duty due either.  Is that correct?

One last question, if he were to gift the shares valued slightly higher than the GW to account for a modest uplift in the value of the company (it is only trading as a company for a year), I guess it would have an impact on inheritance tax if he were to die within seven years, being a PET.  Is it the gain only which would be subject to inheritance tax?

 

 

 

 

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Replying to petestar1969:
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By qhas
28th Sep 2015 20:30

I would submit not..,,,,

BBK wrote:

Thanks Qhas,

I assume if he would gift the shares, no stamp duty due either.  Is that correct?

One last question, if he were to gift the shares valued slightly higher than the GW to account for a modest uplift in the value of the company (it is only trading as a company for a year), I guess it would have an impact on inheritance tax if he were to die within seven years, being a PET.  Is it the gain only which would be subject to inheritance tax?

 

 

 

 


I would contend that the full value of the shares will rank for IHT not just the modest uplift
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By BananaMan
28th Sep 2015 09:23

Does the company have net assets when the Goodwill on incorporation (and associated adjustments) is excluded?

Is there a Profit and Loss reserve in addition to the £50k of share capital?

Are you going to obtain clearance from HMRC on the valuation?

HMRC may try to argue that if the business is profitable, £50k may be too low a valuation - as they would seek to tax the disposal wherever possible.

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