How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4188
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

Dear Sir, My company got sold and I have been asked to rollover

Customer Question

Dear Sir,
My company got sold and I have been asked to rollover 50% of the shares that I retained into company A to company B so out of the £100,000 that I would have been entitled to I only received £50,000. As I originally purchased the shares £20,000 do I need to pay CGT on £19,000 (£50,000 cash - £20,000 purchase price - £11,000 allowance) or should I pay the CGT on the entire profit of £69,000 (£100,000 shares value - £20,000 - £11,000)despite having received at bank £50,000 which would imply that I won't have to pay any further CGT once the shares held into the new company get sold?
Regards
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
You say it was 'your company.' Please give me a little more detail about the company so I can correctly frame my response.
Customer: replied 2 years ago.

Sorry. I am a shareholder of the company (non listed) that I work for and was obliged to rollover 50% of my equity into a newly formed entity.

Expert:  bigduckontax replied 2 years ago.
Right, then, if you held 5% of the voting shares stake in the company, then the gain you make, less your Annual Exempt Amount of 11K [14/15 rates], would be entitled to Entrepreneur's Relief (ER) which limits the tax to 10% flat rate as opposed to the normal 18% or 28%. The 'gain' on the other half can be rolled over, but on ultimate sale the original purchase price will be reinstated for a CGT valuation.
I do not wish to be pedantic, but you say you paid 20K for the shares originally. Was that 20K for the 50% tranche or 20K for the lot. It does make a difference, as I am sure you will appreciate. CGT on 19K would be 1.9K after ER.
I do hope I have helped you with your CT conundrum.
Customer: replied 2 years ago.

Just a couple of precisions: my shares had no voting rights and I held less than 1% of the total company shares.

Also the £20k original share price was for the total amount of shares so how much profit is subject to CGT now that I have received £50k in cash but am obliged to rollover £50k into a newly formed company?

Expert:  bigduckontax replied 2 years ago.
Oh dear, then you have no entitlement to ER, pity that. You have sold half your shares for 50K and they cost you 10K so you have made a 40K gain. Deduct 11K Annual Exempt Amount leaves 29K gain. This is subject to CGT at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale. worst case scenario is a tax charge of 11.2K payable by 31 January 2016, assuming that the whole caper occurred in the tax year 14/15 which would appear to be the case from the tenor of your question.
Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes.
Customer: replied 2 years ago.

Very well said I remember the saying from Benjamin Franklin. One last thing. How could the CGT be a mixture of 18% and 28% rate? My salary is £95k so surely I would have to pay 28% on the totality of the £29k gain?

Expert:  bigduckontax replied 2 years ago.
It won't be a mixture at that income level as you will have exhausted your 20% tax bracket so the CGT will be levied at 28%.
Customer: replied 2 years ago.

Thank you BigDuck!

Expert:  bigduckontax replied 2 years ago.
Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.