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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4100
Experience:  FCCA FCMA CGMA ACIS
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I'm an employee of a UK based (Edinburgh) startup. One

Customer Question

Hello,
I'm an employee of a UK based (Edinburgh) startup.
One of the founder defaulted his role and therefore his share are available.
I've proposed to buy his ordinary full shares, but it's not clear to my CEO and I if these shares will be eligible for tax burden.
The share would be buy £1 but the estimate worth is £281.
Thanks
Antoine
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Antonine, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
Are you buying the shares from the founder. If so there are no tax implications save that on ultimate sale you will be liable to Capital Gains Tax, presumably with Entrepreneurs' Relief.
A company may not issue shares at a discount. Assuming you are buying one pound shares you will not breach this condition. Remember that most private company Articles of Association require share issues or transfers to be be approved by the company.
I am at a slight loss as to what 'tax burden' is worrying your CEO?
I do hope I have been able to shed some light on your position.
Customer: replied 2 years ago.

Thanks for the quick answer...

I feel that I'm not totally getting your point. Please find below the original email I received from my CEO. As you can read, we received the advice from our lawyer and not a proper tax advisor.

So is this scenario below right or not?

The good news is that you would be eligible to purchase some of John’s shares, assuming the other share holders do not take up their premption rights.
The bad news is that , like the options, the lawyers think there may be a tax burden and we need to get advice on that.
For example, if you were to purchase the equivalent of 2%, that would equate to buying approx £16k of shares for £600. The HMRC may therefore claim you have “earned” £15,400 and would have to pay income tax on it. That could be as much as £6,000.

Expert:  bigduckontax replied 2 years ago.
I can see where your CEO is heading. I have a sneaking suspicion that he may be correct oin his surmise. Here is the Citizens' Advice Bureau opinion on the matter:
'Generally, the value of shares transferred to an employee or director at a discount is liable to tax. There are, however, a number of schemes which can give tax and National Insurance Contribution advantages if you obtain shares (usually in the company you work for at a discount or for free.'
Clearly the company does not have such a scheme. If you buy the shares direct from the past founder then this possibility does not apply which is why I first mentioned it in my original response. If you buy form the company then there is a distinct possibility that HMRC will attempt to treat this as a benefit in kind. If you can, buy direct from the founder or his representatives.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Sorry for the minor typos in my last response.