Transfer business to new company

Connected party or not?

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I have a client who runs a successful company.  His domestic partner (to whom he's not married) is an employee of that company.

He wants to bring his partner into having 50% ownership of the business.   As the partner is already an employee, granting a new share outright would be an employment related grant, and therefore taxable.

Could he instead gift part of his own shares and use business holdover relief or would it still be caught?

Alternatively, if they were to set up a new company with 50/50 ownership, could they just transfer the business assets to the new company.  In this scenario would the new company be a connected party for CGT purposes if he only has 50% of the issued shares and votes?

Replies (4)

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By Matrix
19th Mar 2018 14:32

Not a tax issue but I hope there are robust legal agreements in place as 50:50 ownership with any business partner, let alone a romantic one, is a recipe for disaster. The issue you refer to is employment related securities and the above would be caught whether a new share or a transfer to the employee. Maybe value the 50% to determine how much of an issue or just tell them to get married to claim the family exemption, who said romance was dead.

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Replying to Matrix:
By Ruddles
19th Mar 2018 15:04

"the above would be caught whether a new share or a transfer to the employee"

Wrong.

And no need to get married.

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Replying to Matrix:
By Michael Beaver
19th Mar 2018 18:00

Taking Ruddles advice on the no need to get married. He'll be relieved.

I have a boilerplate advice ready for any combination of spouses / friends / cousins, etc that get into business together (basically if you can't agree now how you will end it and who will pay what, don't even start if you still want to be on speaking terms at the end).

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By Ruddles
19th Mar 2018 15:01

"Could he instead gift part of his own shares and use business holdover relief or would it still be caught?"

It shouldn't be caught - and no need to get married first.

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