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Hi, Im selling my 50% stake in a uk ltd company that I have

Hi, I'm selling my 50%...
Hi, I'm selling my 50% stake in a uk ltd company that I have held since 2003 July. The only assets in the company is £200k cash that in the company account. the reason for me selling is a dispute over £50,000 in expenses. is it better for me to incorporate the £50,000 into the sale price of the shares as i believe this will be taxed at 10% entrepreneurial relief. or do i have to receive them as income?
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Answered in 1 hour by:
5/1/2013
Sam Pathak
Sam Pathak, Mr S Pathak MBA FCCA CTA
Category: UK Tax
Satisfied Customers: 465
Experience: Tax Consultant & Freelance Lecturer over 9 years experience
Verified

Hello,

Thank you for your question.

To consider the availability of Entrepreneur's Relief (ER),

(1) What was the company doing?

The potential issue for ER is the large cash reserve and no other assets, as HMRC might deny the ER saying that the co. is primarily 'holding' cash, unless there is a promising business plan to use that cash in the co.'s trade.

Look forward to hearing from you.

Best regards
Sam Pathak

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Customer reply replied 4 years ago

the company is FCA authorised selling insurance products.

Dear XXXXX

 

Apology for the delay in getting back to you. Thank you very much for your response.

 

To start with the ER,

 

It appears that this sale would qualify for ER, therefore, applicable CGT rate is 10% only,

provided

- you are director (or, worked for the company), assumed correct.

- company is a trading company, which is the case, and

- you have not already made capital gains of £10m in your life, in the past, assumed correct.

- All other conditions appear to have met.

 

The only potential issue as mentioned above is that - HMRC may argue that the co. is holding large 'cash' with no other business assets, therefore, an investment co. rather than a trading co.

 

This relatively modest risk can be minimised by having a business plan for the use of that cash, just in case queried by HMRC which is generally rare.

 

This is the only point of a slight concern, for ER.

 

I have dealt with cases with large 'cash' reserve in the balance sheet, and successfully claimed ER without any HMRC queries.

 

So, I am of the opinion that ER is available in your case.

 

If you wish to be fully assured, you might consider making a non-statutory business clearance application to HMRC for a trading status ruling on behalf of the company.

Link below for this:

 

http://www.hmrc.gov.uk/manuals/nbcgmanual/nbcg8800.htm

 

http://www.hmrc.gov.uk/manuals/cgmanual/cg64100.htm

 

Now, turning to the next point,

 

CGT rate with ER is always cheaper, compared to income tax. Therefore, you may wish it to be included as part of the sale price.

 

I trust the above clarifies.

 

Best wishes

Sam Pathak

Sam Pathak
Sam Pathak, Mr S Pathak MBA FCCA CTA
Category: UK Tax
Satisfied Customers: 465
Experience: Tax Consultant & Freelance Lecturer over 9 years experience
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Customer reply replied 4 years ago

how do i value my shares ?


Dear XXXXX

Thank you very much for your acceptance and further queries.

Valuation is a bit difficult and tricky.

You value the business overall and probably agree the value of your proportion with the other 50% holder.

Valuing business:

It depends on a lot of the factors. Typically some use the profit basis as:

Look at the last three years profit, average them, and multiply with a factor 2.5 to 3 depending on types and nature of the business.

Then, split your proportion, then discount it by around 20%.

The above is not a hard and fast rule, just a practical sort of guidance.

Also, some use external valuer (can google to find the valuer firms).

The above is not a tax advice as such, but something based on my experience.

Hope the above would help.

Best wishes
Sam Pathak
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Customer reply replied 4 years ago

do you know of a reputable firm to do the valuations. Google throws up lots of strange set ups.


Dear XXXXX

Thank you for your response.

Apology, I have not used one, so I can't say for sure.

You can research around and ring a couple of them to find out more.

Best wishes
Sam Pathak
Sam Pathak
Sam Pathak, Mr S Pathak MBA FCCA CTA
Category: UK Tax
Satisfied Customers: 465
Experience: Tax Consultant & Freelance Lecturer over 9 years experience
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