Tax obligations on shares when Company sold

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
Hi
Hope someone can help me on this as I am getting mixed answers.
I have held shares in my company (which I purchased) in 1999. The Company has just been sold and I am to recieve a lump sum of money, plus a small allocation of shares in the new Company (monies to be deducted from my payout) + loan notes. Is this classed as personal capital gains? I am a Company Secretary and things have been kept the same employment wise. Is the money classed as business asset gains or personal gains? Is there any specific tax relief or is it just the taper percentage (ie 25% Business or 75% personal). Hope someone can help me on this. There is also 3 more stage payments, (in June 07,08 & 09) only payable if the company makes the level of profit stated. Does this have to be accounted for now or on payment, as it is not certain if these monies will be paid.

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    You are employed by the company and I am assuming that it is an unquoted company which means that for disposals after 6/4/00 it would qualify as a business asset. If your company was AIM listed this would normally qualify as well. Your shares would also be classed as a qualifying business asset if your holding in a quoted company carried at least 5% of the voting rights.

    Taper relief continues for individuals though it has been abolished for corporate companies from 6.4.98 (I think that dates right!) Business assets normally attract maximum taper relief of 75% of the gain after two complete years of ownership in a qualifying holding period.

    It would therefore be assessed on you as personal capital gains in the year the gain arose. You would normally account for future gains as and when they arise.

    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    Thanks Steve, Can normally get my head round tax aspects, but when you get conflicting answers it starts you thinking.

    Karen
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    I would add that if your deferred payments are in the form of cash, the general rule is that the proceeds value of your chargeable gain will be the lump sum cash to be received for your shares plus the value of your right to receive deferred payments in June 07 to June 09.The latter value may be subject to negotiation with The Revenue's shares and assets valuation department.
    There are also tricky rules at ascertaining the allowable cost of your shares for CGT purposes.
    This is potentially a very complex area of taxation and I would strongly suggest you seek out the views of a competent qualified tax adviser.
    Remember you may have to disclose this transaction on your SA Tax return and there are penalties and interest for getting it wrong.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    I knew it was quite complex, thats why I was asking the question and thought the AAT forum would help me out. Would you believe our Company Accountants Tax advisors got some of it wrong! so you can understand why I was getting confused. The Company who bought us have done these transactions many times before and have had the confirmation that it is business assets and as the monies have already been subject to Corporation tax, they will not get the full 40% hit. I agree about the deferred payments that they have to be accounted for now and that any payments not made in future years will be classed as Capital losses. I am just not 100% on how it is accounted for on the self assessment. Many Thanks for your confirmation on the deferred payments
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    You will need to report the chargeable gains arising on the shares on the capital gains pages of your SA return. If you don't receive a return as a matter of course you will need to request one from the Revenue.
    You will be taxed on your net gains after your annual exemption at your marginal rate of tax which is dependent on your other income in the year in which your capital gains arose.
    Perhaps your company accountants can assist with this unless you have lost faith in them.
    If the deferred consideration is not received you will claim a capital loss again via your SA return.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    Thanks again, I think I know where I am up to now. One thing I always like to do is make sure the tax aspect right. I will seek advise on the new shares just to be 100% on it all.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    Has anyone mentioned the possiblity of deferring the capital gain?

    Depending on what relationship you have with the new buyer, you could "work it" so that any gain that you are left with will be covered by taper relief and your annual exemption, leaving the rest of the consideration as loan stock which you can draw on as and when required, tax free!

    If you cannot go that route, depending on the value of the consideration you are receiving in shars, you could claim some roll over relief, this would defer part of your gain and the base cost in your new shares would be reduced.

    Like Ian said, this is a complex area and you would be getting advise from someone that you can show the full facts to. Even if you make the sale as at 06.04.07 you will "extend" you payment of tax a wee while. :wink:

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Tax obligations on shares when Company sold

    Thanks Dean,

    I know the bosses have all scrutinised this to ensure that we are not taxed more than necessary. I think I will contact a local CTA who can go through it with me to ensure that everything is right and keep Mr Taxman happy.
    Wonder if all this will count towards my CPD!

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