Company take-over and Entrepreneurs Relief

SarahLily

One of my clients incorporated several years ago and has developed her business very well. She is looking to retire in a couple of years and reduce her workload as from next year. She has agreed the sale of the company to a colleague for £120,000 Both parties are involved in contract negotiations for the transfer of the company shares in January, with the debt being paid in 3 annual installments. Is there a way of spreading the CGT to reflect the payment of the debt?

I went on a CGT course a couple of years ago. It mentioned using Qualifying Corporate Bonds as a way of staging the CGT over several years. The examples used dealt with figures in the £000,000's so this may be a sledge hammer to crack a nut. Has anybody done anything similar?

My client does satisfy the conditions for Entrepreneurs Relief. Assuming the CGT has to be treated in one go, and it falls in the 2013-14 tax year would the calculation be:
((£120,000-£2) - £10,900) x 10% ?

When she incorporated she and her husband each took 1 x £1 share. She took over his share 3 years ago. The solicitor has advised she should increase the share capital to £100 before the take-over. Can anybody explain why that might be?

Any helpful advice and comments greatly appreciated!

Ellabobbin

Hi Sarah, The date of a capital disposal is the date on which the contract is signed - ie the date on which the sale becomes legally binding and so is not affected by payment in instalments. If someone receives payment in instalments over a period of greater than 18 months they can make an application under s280 TCGA 1992 to pay the tax in instalments also. Accepting QCBs wouldn't help as although the tax would be frozen until the QCBs are redeemed, ER would not be available unless an election is made to disapply the 'share for QCB rule' in which case all of the tax would be payable at the date of the disposal. I have no idea re the solicitors advice! I hope the above makes sense...