Shares and CGT

fishface101

Hi all,

I wonder if anyone can give me a steer...

10 years ago I started a business, Company A, with a friend, each taking 40 shares at £1 each (fully paid up). In 2009 we agreed to be taken over by Company B. No money was paid, but our shares were exchanged for fully paid up shares in Company B. In 2012 Company B was bought by Company C, and again the same happened - I was paid nothing, but my shares were exchanged for fully paid up shares in Company C.

(All through this time I have remained a director of Company A, and a full-time employee of Companies A and B successively.)

Now, at last, with a one-year lock in period completed, and with Company C's shares traded on a stock market, I am free to sell my holding on the open market. My 40 shares have turned into 2 million shares, each currently worth around 15p (i.e. £300,000).

My question is this, is the gain for CGT purposes as simple as £300,000 minus £40, or do the intervening share swaps matter? Also, might I qualify for Entrepreneur's Relief?

I realise that professional advice might be the way to go, but if it really is straightforward, maybe not. Any thoughts gratefully received.

Many thanks,

pjclar02

Hello there

You are correct in terms of the calculation of the gain - the share for share transactions did not crystallise a capital gains tax liability, and this unwinds now - with you paying tax using the nominal value paid at set-up as the cost price.

It sounds unlikely that you would qualify for entrepreneurs relief as presumably you held less than 5% of the shares in C?

fishface101

Hi pjclar02,

Thanks for this.

You are undoubtedly right about <5%.

zygurat789

There are other ways of reducing your liability to CGT such as staggering the sales and transferring shares to a spouce (or civil partner).
You should really seek qualified professional advice on amounts of this size.

fishface101

Hi zygurat789,

Thanks for this. I will take your advice and seek out some professional help.