Taper relief trouble!

moxystu

Hi People, I have a question about taper relief on shares sales that I hope someone can answer..

I work for a small unlisted company that is currently in the process of being purchased. I started with the company in 2005 and on my contract it states that once I have been in employment for 6 months, I would be gifted a 5% stake in the business.

I presumed that this had been done in 2005, but now the company directors have said they didn't get round to registering me as a shareholder, and they are currently in the process of doing so. :mad:

I didn't think much of this until I discovered that I won't be eligable for any taper relief, since the official registration date of my shares will be less than one year before the company sale completes.

I havn't brought this up with the company directors as of yet. Does anyone know if there is any way that my shares can be registered at the 2005 date so that I am eligable for the full business 75% taper relief or does it look like I'll have to pay CGT on the full amount:eek:

Ian_W

AFAIK Taper relief was abolished for all capital gains from 6/4/08 and at the same time a flat rate 18% CGT rate was introduced - see HERE. You also have an annual exempt allowance of around £9.5K on capital gains made in this tax year.
HTH.

EDIT to add: Won't your shares being registered now mean the value of them is higher than in 2005? If that is the case, the gain between the value acquiring them and the valuation when the co is sold is likely to result in less of a "gain" for tax purposes - even though the money you receive is the same? No?

DeepSporran

You may get a better response if you post this on the 'Cutting Tax' board.

As far as I am aware:

Taper Relief doesn't exist any more on disposals after April 5th this year, so the reduction of tax from 40% to 10% (is this your 75% reduction ?) doesn't apply.

Instead (reluctantly) the chancellor introduced Entrepreneur's Relief, which you might qualify for.

This would also reduce your tax, but only from the new CGT rate of 18% to 10% (on the first million £).

However, I think that as well as being an employee and holding at least 5% of the shares and voting rights, you need to have qualified for at least 1 year, so you're still snookered if the shares weren't registered to you in time.

Mind you, even if you end up paying 18%, that's a lot better than 40%, isn't it ? A 55% reduction intead of the 75% you were hoping for.

DeepSporran

Ian_W wrote: »

EDIT to add: Won't your shares being registered now mean the value of them is higher than in 2005? If that is the case, the gain between the value acquiring them and the valuation when the co is sold is likely to result in less of a "gain" for tax purposes - even though the money you receive is the same? No?

But when the shares are registered to him now, that will count as a non-cash benefit which will be subject to income tax, at 20% or 40% on the now higher value. So he'll still be worse off.

moxystu

Hi Ian, thanks for your quick reply. That is good news to hear! The information I was reading must have been a few months out of date!

Hopefully I'll also be eligable for the Entrepreneurs’ Relief also and that will take it down to 10%. Although even 18% is a lot better than the 40%!!

Because the company is private, the shares havn't got an attached value as such (even though that is what the purchasing company is currently evaluating!) The agreement on the contract was to pay a nominal £1 for each share (10 in total) when the 6 months was up.

moxystu

Thanks DeepSporran,

The shares that I am getting do not have any voting rights attached with them, so it looks as though I'm stuck on 18%. But at least the lateness of the shares is no longer an issue!

Can't believe that for the first time Gordon Brown has saved me quite a few £k's!!

DeepSporran

I suspect that you may still get caught out though.

If the shares get registered to you now, then you'll pay income tax (20% or 40%) on the value per share at the time of the gift - which won't be taken as 2005 I suspect. I don't think that the nominal £1 you pay per share will be accepted by HMRC as the value. It will probably be whatever value per share the purchasing company comes up with in its evaluation. You could only avoid this if the shares were given to you as part of an HMRC approved scheme and I can't see this happening in your company from what you've told us.

When the sale goes through, assuming that it is very soon, then the value per share will be just the same, so there will be no capital gain and no capital gains tax.

moxystu

Yeah - I see what you mean. Might look a tad dodgy if they are valued at £1 one day then someone buys them for £50k the next! I'll have to bring this up with the company I think - see if they're willing to give me a "bonus" to buy the shares at they're true value.

Funnily enough you mentioned an HMRC approved scheme - my company did look into the EMI scheme for a while but the directors thought it would be to "complex" to implement!