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bigduckontax, Accountant
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I have a capital gains tax query. In 2007 I began working

Customer Question

I have a capital gains tax query.
In 2007 I began working for a U.S. Company, which had just been bought by a Canadian private equity company. As it was in effect a new business a small number of the management team had the opportunity to buy common stock at the time of the company's founding. I was one of those people (I think I may have been the only non-US citizen to have this opportunity). The stock was bought, and I received a quarter of the stock available to me for each year I worked there. I accrued the full value by the time I had left in 2012.
In June 2013, the company re-capitalised it's balance sheet, and the board of directors approved a redemption of the shares, and also issued new common stock to all the existing holders.
This resulted in a payment made to me, in two tranches during July 2013.
The company stated in its letter that this payment was not considered a dividend payment, since the redemption was not sourced from the 'earnings and profits' and was therefore classed as a nondividend distribution. It states that to the extent that the non-dividend distribution exceed the share's tax cost basis, the excess is taxable as a gain.
Now this letter applies to US citizens principally, so my enquiry relates to the the treatment within the UK. If this is capital gains, accrued over five years, to be taxed as capital gains, what allowance can I claim for holding the shares for the full five years, and what tax rate should I pay this distribution at.
I need to submit this within my upcoming 13/14 tax return.
Many thanks for your feedback.
Graeme Allan
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Graeme, I'm Keith and happy to help you with your question.
In basic terms the letter is correct in what it says about US tax law and it is effectively the same for UK ditto. Any gain made on the distribution over the cost of the shares is a capital gain in the 13/14 tax year and Capital Gains Tax (CGT) applies. As this gain did not crystalise until July 2013 then the whole gain is subject to CGT in the 13/14 tax year.
You do have an Annual Exempt Amount of 11K to offset this gain which is then taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in 13/14. Any other capital losses you may have in the year may also be used to offset the gain. Unfortunately this gain is not entitled to Entrepreneurs' Relief as it was not your business; this would have limited the tax rate to 10%.
So, depending on the quantum of the gain, you may have a CGT liability. Your question is silent upon this detail. I do hope I have assisted you in explaining your CGT position.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your excellent support.

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