 | THE PITFALLS OF CAPITAL GAINS TAX | | | | | Maximising Entrepreneur's Relief ... | Posted by Nigel Adams on 27/01/2012 @ 08:30 |
Captial Gains Tax is rated differently depending on the circumstances. If you have investments in a company then you may find that the rate charged on the sale of any shares is different from what you expect. I'll try and explain the difference as simply as I can ...
 money down the drain? get the right capital gains tax advice from ad valorem and save
With CGT at only 10% if Entrepreneurs' Relief is available - otherwise the tax being at 28% - as accountants we are always on the lookout for ways of getting the tax on a sale of shares at the 10% rate. Any ideas must be watertight and relate to individual circumstances, as otherwise it may be impossible to resist any future HMRC enquiry on the arrangements.
One such idea is where a shareholder in a trading company is an outside investor who has not been an officer or employee of the company. In that case the gain on disposal of any of the shares does not qualify for Entrepreneurs' Relief and Capital Gains Tax on the share sale is 28% instead of 10%.
A possible way round this can be found where, for example, each parent owns - say - 40% of the ordinary share capital and meets all of the requirements for Capital Gains Tax Entrepreneurs' Relief. Their son is not an officer or employee of the company and owns the remaining 20%, so faces a CGT bill on sale of the company of 28% compared with his parents 10% tax bill.
The son could make an outright gift of his 20% holding to either parent before the planned sale. The parent will qualify for Entrepreneurs' Relief on their sons holding as well as on their original shares as the parent has already met all of the requirements. The fact that the parent will not have owned the 20% holding for the normal minimum period of the 12 months to disposal is irrelevant. The result is that the gain on the 20% holding is taxed at 10%, not 28%. How interesting is that?
As you can see, there are many twists and turns for the entrepreneur as far as Capital Gains Tax is concerned and it is always vital that you seek professional advice before making any major decisions that can affect the level of tax you owe to HMRC. At Ad Valoren, we have our own Tax Specialists who can advise you on the best way forward.
Call me on +44 (0) 1908 219100 to find out more.
Until next time ... 
NIGEL ADAMS
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 | MANAGING DIRECTOR Nigel formed Ad Valorem in April 2001 with a commitment to working with companies of all sizes, just the one common goal though the ambition to succeed and make the best of every opportunity that is presented.
Nigels strengths are thinking outside the box and using his practical and down-to-earth approach to help business owners maximise their potential. He will tell you what you need to know but not baffle you with accounting jargon.
Ad Valorem continues to grow and still fosters the family atmosphere with both its team and clients that is core to his business vision.
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