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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have recently moved from Australia to the UK. Whilst I was

Customer Question

I have recently moved from Australia to the UK. Whilst I was still in Australia I sold my company to another in the UK and I gained a 1% shareholding in the company. At the time the share valuation was $117,000 AUD, so I have paid all the appropriate tax in Australia regarding this share.
In September 2014 I moved to the UK permanently and finalised all tax affairs in Australia and notified them that I was now moving to the UK permanently. I am working for the company in the UK that I sold my company to. I have been offered another share in the UK company and am likely to receive more shareholding over time. We are aiming for transaction over the next few years so it is likely that the maximum shareholding that I will reach would be 3-4%. The company has set up and EMI scheme and I have the option of taking my 2nd share in or out of this scheme. The recent valuation of each share for the EMI is valued at £2100. 1% is equal to 10 shares, so the value of 1% at present is £21,000.
I need to know:
1. Which would be the most tax efficient way to acquire my second share through EMI or not?
2. What capital gains benefit if any would I see through EMI?
3. Should I strike the share straight away if I acquire through EMI
4. Can my original share be put into the EMI for a more tax effective result in transaction? I have overpaid tax on the first share as it was overvalued. The company are willing to allow me to put the first share into EMI? What would the company need to do to in order for me to roll my share into EMI. Presume they would need to buy back at the current valuation?
5. Would I have to pay any further tax in Australia on my first or any other further shares considering I have left Australian and have notified the tax department that I was leaving permanently? I am in the UK on a spousal visa, so does this have any implications for tax or Capital Gains?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

The advantage of acquiring shares as an employee though EMI is that on sale any gain made would be entitled to Entrepreneurs' Relief from UK Capital Gains Tax which limits the rate to a flat rate of 10% instead of the normal 18% or 28% or a combination of the two rates depending on the income including the gain in the tax year of sale. Whether you strike immediately or retain EMI options is up to you and must depend on how your envisage the organisation to flourish.

If you reside in the UK for more than 182 days in any one tax year you are liable to UK taxation on all your income world wide. Any tax paid in another jurisdiction may be allowed as a tax credit againt UK taxation providing that a Double Taxation Treaty exists which it does between the UK and Oz. As you have left Australia permanently a liability there appears unlikely. On permanent entry to the UK HMRC would make you resident for the tax year following your arrival and furtermore split the arrival year into two portions, one non resident and the other resident.

I do hope my reply has been of some assistance.

Customer: replied 2 years ago.

Hi Keith,

I am aware that Entreprenuers relief is only relevant if you get to 5% or higher and you have held this for 12 months, so 10% tax is not relevant to my circumstance. How much tax will I have to pay without Entreprenuers relief with an EMI?

How would I put my original share into EMI? Does the employer have to buy back the share?

If I strike the share do I have to pay tax straight away if the share is through EMI?

Expert:  bigduckontax replied 2 years ago.

As far as I am aware the rules changed in April 2013 removing amongst other things the proportional holding requred to be entitled to the CGT Entrepreneurs' Rate.

If the option is granted to recruit or retain employees the purpose test is met and the original shares can be put in the EMI.

The consideration for the shares must be rendeded when the shares are actually axquired. If the EMI is an option then paymment is not needed until the option is exercised.

Customer: replied 2 years ago.

I have just looked at HMRC website and the latest information says that Entrprenuers relief is only if you hold 5% or more for 12 months.

Expert:  bigduckontax replied 2 years ago.

But it used to be much higher. In your case you will have to hold off until your shareholding reaches 5% for the relevant period to avoid CGT at normal rates. However the principle of EMI is to limit CGT to 10% and HMRC CG64052 states:

'For disposals on of after 6 April 2012 it is possible for shares acquired under the EMI scheme to qualify for Entrepreneurs’ Relief where the “personal company” requirement is not met.

To qualify for Entrepreneurs’ Relief the share must -

have been acquired on the exercise of a qualifying option granted under the EMI scheme (ESSUM50000+),

have been acquired since 6 April 2012 but see below regarding shares acquired before 6 April 2013,

be disposed of at least one year after the grant of the option,

and

The individual must have been an employee of the company, or a company in the same trading group throughout the one year period ending with the disposal.

The legislation and this guidance refers to EMI shares issued from 6 April 2012 that are eligible for Entrepreneurs’ Relief as “relevant EMI shares'.

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

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