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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5028
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I am a 5% stakeholder in a private UK company which currently

Customer Question

I am a 5% stakeholder in a private UK company which currently qualifies me for Entrepreneurs Tax Relief on capital gains up to £10m (10% liability as opposed to 28% as I understand). I will shortly be taking a minor dilution to this stake which will take be below the 5% holding which will exclude me from the ETR scheme. Do I have any options of avoiding the full CGT rate?
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.
Hello and welcome to the site. Thank you for your question.

In order to qualify for Entrepreneurs' Relief, following conditions have to met throughout the 12 month period leading up the date of disposal, where the company continues to trade -

- the shares must be held in a trading company or in the holding company of a trading group
- the shareholder must be an officer or employee of the company or a company within the same group
- the shareholder must own at least 5% of the company's ordinary share capital and be able to exercise 5% of the voting rights within the company.

You would certainly qualify for Entrepreneurs' Relief for first dilution provided you meet all of the above conditions... but as far the sale of residual holding is concerned, you will not be entitled to this relief if your holding is below 5% and therefore won't avoid the full CGT rate.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.

Hi thanks for the reply but I already knew this information which is published on the HMRC website. My key question was "Do I have any options of avoiding the full CGT rate?"

Expert:  taxadvisor.uk replied 3 years ago.

Thank you for your reply.

As I stated in my previous posting, you would have the option of avoiding the full CGT rate on first sale only as your holding would be 5% before the sale but as it would drop below the required 5% for subsequent sales, you would pay CGT at full rate of 18%, 28% or a combination of both as applicable I'm afraid.

I hope this is helpful.