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tdlawyer
tdlawyer, Lawyer
Category: Law
Satisfied Customers: 1096
Experience:  11 years experience of general practice.
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I've been offered 20% shares, free of charge in a UK ltd. company

Resolved Question:

I've been offered 20% shares, free of charge in a UK ltd. company with a turnover of 6.5 million GBP. Will i have to pay any tax on receipt of the shares?
Submitted: 2 years ago.
Category: Law
Expert:  tdlawyer replied 2 years ago.
tdlawyer :

Hi thanks for your question. My name is***** should be able to assist with this.

tdlawyer :

In brief, a pure genuine gift of shares doesn't usually attract any tax liability on receipt of the shares by the acquiring party.

tdlawyer :

If cash consideration (i.e. a payment price) was paid, then it would be 0.5% of the money paid. This isn't payable on the "market value" of the shares, and hence, if given for nothing, stamp duty isn't usually payable.

tdlawyer :

However, it depends on why they might be transferred to, because if in relation to amortising a debt etc., this counts as consideration and would be chargeable to stamp duty on the debt amount.

tdlawyer :

If you were the lucky recipient of 20% of a 6.5m company for nothing (which seems too good to be true!) then you're not likely to be liable to stamp duty on that acquisition, but I expect HMRC would be looking at this very closely indeed.

Customer: Hi Tony, as mentioned, i have been offered 20% shares in a trading UK LTD company. The current owners are concerned I will be subject to an immediate tax burden equivalent to 45% of the value of the company multiplied by the 20% equity share gifted.. 1) i believe gifted shares are not liable to tax, 2) how would one value a company if there were a tax burden.
tdlawyer :

Are they referring to stamp duty?

Customer: I don't know. What is my exposure if i were gifted shares?
tdlawyer :

Well, as I mentioned above, it would be stamp duty on the consideration for the acquisition.

tdlawyer :

I'm not sure where the sellers get their figures from, but then, you have to look at all the background to the transaction.

tdlawyer :

Usaully, the tax charge arises on disposal of shares - i.e. capital gains tax.

Customer: What is the stamp duty, or, how is it calculated? The 'consideration' for the acquisition seems unclear to me. For instance, if the stamp duty is a set % (claimed to be 45% which is not confirmed by me...hence my question on the liability and % to you), how do the authorities calculate 'consider' the value of those 20% shares? How do they value the conpany? Thanks, Jim
tdlawyer :

I mentioned this above. Its *NOT* market value that;s relevant.

tdlawyer :

It's the value you pay for them.

tdlawyer :

If you pay £1m, you would pay £1m x 0.5%

tdlawyer :

If you paid nothning, you would be £0 x 0.5 = nothing.

tdlawyer :

You should go and see an accountant or tax advisor before you do anything here, you need to set out the entire background as this is an incredibly complicated area. What I am explaining to you is general principles, which may not be applicable to your specific case.

Customer: Thanks. I am due to pay £zero for the shares. So your advice seems clear, i have no immediate tax exposure for the acquisition of the shares, only a liability on disposal. Can, you help me any further with the accountant / tax advice? Thanks, Jim
tdlawyer :

I can't advise you because I don't know your background sufficiently - this is general information on how the tax charges work. You should see a specialist tax advisor and go through the background first. It is more complicated that simply "I'm not paying anything" for the reasons I have set out above.

tdlawyer :

You can find accountants in all towns and cities that can help; I wouldn't necessarily recommend one over the other, but a good sized firm is probably best given the values involved.

Customer: Thanks. Jim
tdlawyer :

Thanks Jim. Please remember to rate the answer for me before leaving tonight. Thanks.

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