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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4188
Experience:  FCCA FCMA CGMA ACIS
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! this is a more elaborate query - happy to pay more

Customer Question

Hello!
this is a more elaborate query - happy to pay more than the usual fees for this, but so far we got better advise from answer.co.uk than from our own tax lawyer ;)
My wife and i own a UK private Ltd company; my wife us still registered tax-wise in the UK due to a sole trader business there; she has UAE residency though. She owns 51% in the Ltd company. Myself i am full UAE resident, owning the remaining 49% of the Ltd company.
We also own a private Ltd company in the UAE (50/50) [UAE Company].
We now are setting up a new company in Qatar with an investor [JV Company), again (;)) 50% owned by the Qatari, 50% by UAE Company.
This JV Company will acquire 100% of the shares of the UK Ltd company.
For the acquisition my understanding is that my wife and myself sell our shares to the JV company in Qatar; we will then invest the purchase price again in the JV company in Qatar.
We both are actively involved as Directors/Company Secretary in the UK company since its foundation; the company turns over around 800k, last year profit (YE 31-08-2014) we made a profit of around 100.000 but still have losses carried forward which brought this down to "Zero".
When i sell my shares, as i am UAE resident, there is no tax i assume.
As for my wife selling her shares to the QA company, does she:
- have to pay tax (assuming yes)
- what are the thresholds that could be applied
- could she transfer any shares in my name to lower the amount of tax payable
As for the valuation:
- what is the most tax efficient way to evaluate the value of our shares (basically the company does not make any profits due to losses carried forward, but this will change this year...)
- with the company being fully integrated in the JV company, we will make good profits, but of course not necessarily in the UK anymore, are there any implications with the initial valuation?
this is a lot i am asking, happy to take this offline or if you would deal directly as a full mandate if you can help me solve all this :)
thanks
Anian
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello Anian, I'm Keith and happy to help you with your question.

The disposal of the UK company to the JV company would trigger a Capital Gains Tax (CGT) liability on any owner of the shares in the UK company. This CGT would be levied on any gain made on the sale of the shares.

If the shareholders are not resident for tax purposes in the UK then there is no laibility. If they are resident in the UK then there would be CGT on the gain only, but there is an Annual Exempt Amount of 11K available to offset this. The balance would then be taxed at 18% or 28% or a combination of the two rates depending upon the UK income including the gain. in the year of sale. There are two additional reliefs which may apply. The first is Entrepreneurs' Relief which limits the tax rate to 10% flat rate. The second is Rollover Relief which merely postpones any taxation until the JV company is eventually disposed of. The fact that the JV company is domiciled overseas might cause problems here, so I would tend not to rely on this second relief.

Your wife could transfer shares to you without triggering a CGT liability as it would be an inter-spousal transfer and thus outside the scope of UK taxation. It all really hinges on your wife's residency position viz a viz UK taxation.

For CGT purposes the sale value of your UK company must be the current market value. Unfortunately a private company is only worth what a buyer is prepared to pay for it. HMRC do not look at it in quite that way and would tend to rely on the asset value. I cannot help you in assessing the market value and suggest that you would have to rely upon the services of a local, trusted professional to assist you in the valuation. I would however point out that brought forward losses can indeed have a value to the buyer.

I do hope that I have covered all the points which you have raised in your conundrum. Please don't hesitate to pose follow up quastions if there is anything you do not understand in my answer.

bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.

An afterthought; here is the opinion of Out.Law.com [Pinsent Masons, Solicitors] on the subject of inter spousal transfers of shares:

'If a spouse gives an asset to another spouse, there is no tax to pay on the gift itself. The receiving spouse is treated as if he/she bought the asset for the price and at the time that the other spouse did. 'Spouse' for this purpose includes civil partners, but not unmarried partners living together. To qualify for this arrangement, the spouses/civil partners must be living together in the tax year.'

Expert:  bigduckontax replied 2 years ago.
Thank you for your excellent support.