Sale of Shares

What happens if you sell a share to connected person?

Disposal takes place at MV

What additional considerations need to be taken if the share disposal is not of a material interest?

FMV obtained, HMRC may need to involve share valuations team so consideration given for post transaction valuation check prior to submission of tax return

the value of shares should not reflect premium for control - need to discount for non-controlling shareholding.

When must BADR be claimed?

by 31 Jan following filing date for return for the year in which gain is made

When must gift relief claim be made?

Within 4 years from end of TY of disposal

What is the effect of GR claim?

Defers part of the gain arising and reduces the base cost of the shares in recipient of gift.

What is GR restricted by?

Amount of cash proceeds which will be paid by recipient and the existence of non-business assets within company.

Set out the steps for calculating GR

Calculate gain before relief

Calculate business fraction by doing MV of CBA / MV of all CA

Calc max potential holdover relief: (MV less consideration) * CBA/CA

Deduct step 3 from step 1 to calculate chargeable gain

What is a CBA?

an investment asset - eg goodwill

What is a CA?

things such as goodwill or investment property

What are IHT considerations when selling share to connected person at undervalue?

Sale at undervalue = loss to estate.

With gratuitous intent, the loss is a PET for IHT purposes.

When does BPR need to be considered?

If the PET becomes chargeable on death within 7 years

when does BPR reduce a PET?

If recipient still owns the shares on your death or

Recipient has disposed of the share and fully reinvested the net proceeds in other relevant business property

If your recipient is considering sale of company within 7 years what are considerations for IHT purposes?

• Recipient can consider insuring against potential liability by taking out a policy on your life

• You can take out life insurance policy under which proceeds are paid to recipient. Monthly premiums would reduce your estate and be exempt as normal expenditure

What is BPR restricted by?

Except assets within the company i.e an asset whic is neither:

• Used wholly/mainly in business for 2yrs preceding transfer or

  • not required for future use in business

What are SD implications on sale of shares?

Recipient liable for SD on 0.5% * consideration