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bigduckontax
bigduckontax, Accountant
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My partner and I floated our company on the Main Stock Market

Customer Question

My partner and I floated our company on the Main Stock Market in 1996.
At the time of the flotation I received 34.5%, my partner 35.5% and new investors 30% of the issued shares.
15 years ago I retired from the company and sold shares to support retirement.
I sold some shares in the last tax year and was taxed at 28%. (Tax equivalent was offset against my capital losses). Can you explain why I didn't receive entrepreneurs relief at 10%?
I thought that relief was for a lifetime.
I still own 5% of the company shares.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I'm Keith and happy to help you with your question.
You would certainly appear to be entitled, but did you claim it? There are lifetime limits, but I suspect that you will be well within these. Here is the advice from Contract Eye on the subject:
'How and when to claim
◾There are two ways to claim the relief; either via your Self Assessment Tax Return, or by completing Section A of the Entrepreneurs’ Relief fact sheet (see link below).
https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet
◾A claim must be made to HMRC within 12 months of 31st January in the year following the one in which the disposal was made, i.e. if you made an eligible disposal during the tax year ended 5th April 2013, you will have until 31st January 2015 to make a claim. This is roughly 22 months following the end of the tax year in question
◾Individuals can make as many claims against their allowance over time, although gains in excess of the £10m lifetime allowance will be taxed at the standard 18% CGT rate (28% for higher rate taxpayers).
◾A claim must be made to HMRC within 12 months of 31st January in the year following the one in which the disposal was made, i.e. if you made an eligible disposal during the tax year ended 5th April 2013, you will have until 31st January 2015 to make a claim. This is roughly 22 months following the end of the tax year in question.'
Provided you pass that last bullet point, your question is silent as to exact dates, Then you should receive the relief. You should take the matter up with your tax office with a view to having your 13/14 tax return revised.
I do hope I have shown you a way forward in this matter.
Expert:  TonyTax replied 1 year ago.

I have a different answer which includes my own commentary. Take a look at pages 3, 4 and 5 of HS283 here.

You appear to have retired from the company 15 years ago. In order to qualify for entrepreneurs' relief, you have to satisfy the condition as set out at the bottom of page 3 of HS283.

You had over 5% of the shares and the company was still trading but unless you were an officer or employee of the company in the one year to the date of disposal of the shares in the last tax year, you won't qualify for ER.

If you were an officer or employee of the company in the one year qualifying period, then you may not have ticked the appropropate box on the capital gains pages to claim ER. ER will be ineffective where your net gains for the tax year are covered by the annual CGT exemption. The old ER used to be discount from the gain so that when CGT was applied at 40%, the effective rate was 10%. That system was replaced by a simple flat CGT rate of 10% for gains qualifying for ER made after 22 June 2010 as you can read on page 21 here.

I hope this helps but let me know if you have any further questions.

Expert:  TonyTax replied 1 year ago.
Hi again.

I mentioned HS283 in my answer to your question. It should have read HS275, though the link in my answer took to you HS275 in any event.
Expert:  bigduckontax replied 1 year ago.
Your question was not in respect of the original disposal of part of your shareholding which in any event was before Entrepreneur's Relief was introduced in 2008. For this latest sale you advises that you have over 5% of the equity so the relief would be applicable. The comment regarding 'CGT Exemption' from which I assume the expert actually means the Annual Exempt Amount, is clearly misleading as you tell us you were taxed at 28% and therefore had gains over this amount. I can only feel you have received additional advice which not only confusing, even misleading.
As I originally said, 'Did you claim it?' I would take the matter up with your tax office. after all, in a worst case scenario, they can only say no!
Read more: http://www.justanswer.com/expert/expert_report.aspx?epr=1607558#ixzz3RRSZCpI2
Expert:  TonyTax replied 1 year ago.
I stand by my answer.

I was not referring to the original disposal 15 years ago in my answer. I was referring to the disposal in the last year when you paid CGT at 28%. That rate only came into being in 2010 so its obvious which disposal is being talked about.

I simply refer you to the bottom of page 3 of HS275 here and set out verbatim what it says:

"If the business is owned by a company in which you dispose of the shares or securities, then throughout the qualifying period of one year the company must be:

your personal company (see page 4),

and either a trading company or the holding company of a‘trading group’,

and you must be either an officer or employee of that company (or an officer or employee of one or more members of the trading group".


I deal with this type of thing every day. I've dealt with numerous people who have claimed ER long after the qualifying period only to have their claims refused by HMRC.
Expert:  bigduckontax replied 1 year ago.

These interventions are quite un-necessary. If the questioner has retained his directorship even if he is not remunerated, and the question is silent on this matter, then the Relief would still apply.

Expert:  TonyTax replied 1 year ago.

I gave the correct answer by specifically mentioning the qualifying criteria. That's what's important. I never mentioned remuneration. All I mentioned was the requirement to be an officer or employee. The words "somebody's learning something new" come to mind.

Expert:  bigduckontax replied 1 year ago.
I suggest that this is not, in fact the case. It was never suggested that the other expert mentioned remuneration. It is perfectly possible for a person to be an officer of a company yet not be remunerated, a possibility in the scenario presented by the customer.
Expert:  TonyTax replied 1 year ago.

I'm wondering why the other expert didn't give the qualifying criteria in his original answer. All of a sudden, it has become critical to be an officer or employee whether unpaid or not.

You might note that I also have the support of another expert.

Expert:  bigduckontax replied 1 year ago.
That is another irrelevance. No expert has disputed that employment or directorship, who is an employee per se anyway, whether remunerated or not, is a requirement for the relief.
'The lady doth protest too much, methinks!' would be an appropriate and pertinent quote from the Bard of Avon [Hamlet].

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