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RE: Shares/Entrepreneur's relief/Spouses

readerreader Experienced MentorMAAT, AAT Licensed Accountant Posts: 1,042
Hi,

Lets say that there is a company owned 50:50 by a husband and wife for 3 years.

Both are directors.

The wife wants to leave the company and transfers her shares to him and resigns from the company.

6 months later the company stops trading.

Could the husband liquidate the company and claim entrepreneur's relief on the disposal of all the 100 shares, or only the 50 shares that he has held for more than 1 year?

Comments

  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    I can see this is a confusing one...
    The 12 months minimum period applies to
    1/ the trading requirement-
    2/ the 5% requirement i.e the individual is disposing of shares in a personal company (a company in which he holds at least 5% of the ordinary share capital and in which he is able to exercise at least 5% of the voting rights)
    3/ the working condition

    I may be wrong but it seems all three are satisfied (and the disposal takes place within 3 years of ceasing trading). But I might be missing something?
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    I think there is a special rule with inter-spouse transfers, where the shares retain or hold the characteristics of the original donor spouse, e.g. if the donor spouse met the above 3 conditions then a share transfer to a donee spouse would mean the shares who still keep the above 3 inherited characteristics. Although I need to look this up and am likely to be horribly wrong. I may be getting confused with the cost of the shares.
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    I think the aggregation of ownership between spouse is for the purpose of share buy back, I don't believe it applies for ER purposes.
    I still think the whole of the husband's shareholding qualifies because he is disposing of shares in a personal company.
  • arjunarjun Registered Posts: 12
    Situation mentioned above meets all conditions below:
    1. Trading company
    2. owned at least 5% more than 12 months
    3. Working in the company

    So the disposal of 100% by husband qualifies for ER.

    Here is not much tax planning but if wife had 4% and husband had more than 5%, the 4 % is transferred to husband and disposed instantly (without waiting for 12 months) and still qualifies for ER.

    Hope that his helps.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    arjun said:

    Situation mentioned above meets all conditions below:

    1. Trading company

    2. owned at least 5% more than 12 months

    3. Working in the company



    So the disposal of 100% by husband qualifies for ER.



    Here is not much tax planning but if wife had 4% and husband had more than 5%, the 4 % is transferred to husband and disposed instantly (without waiting for 12 months) and still qualifies for ER.



    Hope that his helps.

    Thanks,

    Do you have any links that you could provide regarding the above?
  • arjunarjun Registered Posts: 12
    No I don’t but this is the case and is the tax planning.
    Following are the statutory references for points I have mentioned above:

    1. S169A
    2. S169(3), S169(6)

    All from TCGA 1992.

    Hope this helps.
  • arjunarjun Registered Posts: 12
    And if anyone needs any tax help, just email me on [email protected]
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    I think it's s169H
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    arjun said:

    And if anyone needs any tax help, just email me on [email protected]

    Free? :-)
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
  • arjunarjun Registered Posts: 12
    > @MarieNoelle said:
    > And if anyone needs any tax help, just email me on [email protected]
    >
    > Free? :-)

    Will try to certain extent.
  • arjunarjun Registered Posts: 12
    > @reader said:
    > Can't find s169a in the legislation: https://www.legislation.gov.uk/ukpga/1992/12/section/169/enacted

    Look at 169I???
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    169I
    Material disposal of business assets
    (1)
    There is a material disposal of business assets where—
    (a)
    an individual makes a disposal of business assets (see subsection (2)), and
    (b)
    the disposal of business assets is a material disposal (see subsections (3) to (7)).
    (2)
    For the purposes of this Chapter a disposal of business assets is—
    (a)
    a disposal of the whole or part of a business,
    (b)
    a disposal of (or of interests in) one or more assets in use, at the time at which a business ceases to be carried on, for the purposes of the business, or
    (c)
    a disposal of one or more assets consisting of (or of interests in) shares in or securities of a company.
    (3)
    A disposal within paragraph (a) of subsection (2) is a material disposal if the business is owned by the individual throughout the period of 1 year ending with the date of the disposal.
    (4)
    A disposal within paragraph (b) of that subsection is a material disposal if—
    (a)
    the business is owned by the individual throughout the period of 1 year ending with the date on which the business ceases to be carried on, and
    (b)
    that date is within the period of 3 years ending with the date of the disposal.
    (5)
    A disposal within paragraph (c) of subsection (2) is a material disposal if condition A or B is met.
    (6)
    Condition A is that, throughout the period of 1 year ending with the date of the disposal—
    (a)
    the company is the individual's personal company and is either a trading company or the holding company of a trading group, and
    (b)
    the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group.
    (7)
    Condition B is that the conditions in paragraphs (a) and (b) of subsection (6) are met throughout the period of 1 year ending with the date on which the company—
    (a)
    ceases to be a trading company without continuing to be or becoming a member of a trading group, or
    (b)
    ceases to be a member of a trading group without continuing to be or becoming a trading company,
    and that date is within the period of 3 years ending with the date of the disposal.
    (8)
    For the purposes of this section—
    (a)
    an individual who disposes of (or of interests in) assets used for the purposes of a business carried on by the individual on entering into a partnership which is to carry on the business is to be treated as disposing of a part of the business,
    (b)
    the disposal by an individual of the whole or part of the individual's interest in the assets of a partnership is to be treated as a disposal by the individual of the whole or part of the business carried on by the partnership, and
    (c)
    at any time when a business is carried on by a partnership, the business is to be treated as owned by each individual who is at that time a member of the partnership.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    The above just mentions material disposal.

    Doesn't mention about immaterial <5% disposal.
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