Transferring shares and CGT

[Michellexxx]

My spouse has shares in the company he works for- started by his father. They are hoping to sell at some point over the next few years. He has been worrying a lot about the potential changes to CGT. No dividends have been taken from the company with the intent that it will pay off in the sale. He is now worrying about maybe moving abroad - but this would have to be for 5 years! The potential 45% tax would make the sale and lack of taking dividends a bit mad.

I am a basic rate tax payer and see that, even with potential changes, my CGT rate would be lower and have also found online you can request % share in tax on any capital gains. This would be preferable to his (quite knee jerk) reaction that we would have to live abroad.

This is a business that they have been growing for years and that my husband takes a much lower wage than if he worked in the same role elsewhere, so that they can grow!

Does anyone have any experience of this? I realise it’s quite niche.

Sorry just reread. The % but I mean, we joint own the shares and request my tax of 80% and his 20% of the shares

He needs to see an expert tax lawyer or accountant. Currenlty there is an allowance of £1m each person who owns a business if the strict requirements are met which means up to that amount CGT is only 10% not higher rates. However I do not know if he meets the requirements for BADR (used to be entrepreneur's relief).

He and his father and you might want to sell the shares before any CGT changes come into force and I think for other family members who work in the business and are also eligible they have £1m each person at the 10% rate, but not sure if it is only your husband and his father who work in the business - again as so much money could be at stake he needs to speak to an accountant. However if CGT changes happen immediately then he might be too late and have to pay the higher amounts of CGT which culd be 20% for sale of shares (and 28% for sale of properties). You are right that your tax rate may be lower than his because you earn less although it willd epend how much is obtained from sale of the company - if very large amounts then all shareholders may be pushed into higher rate tax brackets of BADR does not apply or is withdrawn by the state.

If he has a buyer in mind he could do a sale very quickly although even with huge urgency it is usually more like weeks than days to complete a sale.

When a company has a lot of savings within the company before a sale one issue is often whether they will be drawn out as dividends before the sale or the company bought with the cash within the company. Neither route is right or wrong but it is certainly a relevant issue at the time.

May be would sell the assets of the company not its shares by the way. There are two ways to sell - assets or shares although most sellers prefer to sell the shares as that usually means one lot of CGT at 10% rather than the company sells its assets and has all that cash from the sale in the company and subject to corporation tax (companies pay CT not CGT) and then have to take the money out of the company as dividends and be taxed some more on it.

Thanks for the detailed reply. It would be a very large sale- probably 10s of millions, his dad is majority shareholder and tbh I think would just pay out whatever was asked as he’s older, been doing it for years, so would just want to enjoy it. . We have some shares that would still equate to quite a lot, definitely quite far beyond the 1m mark.
The money generated is still being out straight back into the company. It’s pharma, so there’s a lot of different areas they’re expanding into.

They don’t have a strict buyer right now but the general idea was over the next couple of years. But this threat of CTG is obviously starting to worry people and also makes them question if they should be putting so much into growth in the short term.

I think we’ll wait and see what the mini budget says and when a sale might happen and just deal with it all then. I’m just not very keen to e abroad for 5 years, even if it’s for 7 figures!

That sounds a good idea - see what the mini budget says etc. There may also be a partial exit route of allowing external investors in to buy some of the shares but keep some in the family too. It is certainly something that needs expert advice from people who know a lot about tax.

As it is fairly likely Labour will come into power in which case any Tory tax increases will look really minimal in comparison it may be a good time to lookfor a buyer sooner rather than later.