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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3936
Experience:  FCCA FCMA CGMA ACIS
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I own all the shares in a property development trading company,

Customer Question

I own all the shares in a property development trading company, let's call it ABC Ltd. For simplicity, assume its only asset is a freehold which it has recently purchased for £450,000.
I am offered £600,000 for my shares in ABC Ltd by an investment company, let's call it XYZ plc. Leaving aside my own CGT position, assume XYZ plc liquidates ABC Ltd and takes the freehold into its own books.
Should XYZ plc be able to avoid tax on the unrealised gain in ABC Ltd and add the additional £150,000 paid for the shares to the asset's base cost? Or do I have to agree a discount to the purchase price to reflect a tax liability within ABC Ltd on top of my personal CGT?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith one of the experts on Just Answer, and pleased to be able to help you with your question. You do not have to do anything except, if you wish, agree a sale to ABC Ltd and, of course meet your own personal CGT liability, if any. If you sell your shares in ABC Ltd to XYZ Ltd then, apart from your own personal CGT position, what XYZ Ltd does with ABC Ltd is a matter wholly for them and nothing to do with you. There is no need for you to discount the purchase price unless you wish so to do. These Corporation Tax [companies are not subject to CGT, all gains and losses being taken through their trading accounts] matters are the companys' and are of no concern of yours. I do hope that I have been able to shed some light on this position for you.
Customer: replied 2 years ago.

I am afraid this does not answer my question:

"Should XYZ plc be able to avoid tax on the unrealised gain in ABC Ltd and add the additional £150,000 paid for the shares to the asset's base cost?"

I need clarity on the purchaser's position in order to calculate whether I will obtain a better all in result by 1) selling him the property directly from ABC Ltd or 2) selling him the shares

Expert:  bigduckontax replied 2 years ago.
There is no tax on an unrealised gain so there is no tax to avoid. However, the transfer of the property then there will be a disposal and any gain would be taxable as part of the company's trading.
Which is the best option for you depends upon what a purchaser is prepared to pay for the shares. This is always a problem when disposing of a private company which is merely worth what a buyer is prepared to pay for it. Selling the property from ABC Ltd might well force a more realistic price as you are selling tangibles as opposed to intangibles.
Customer: replied 2 years ago.

I am afraid this still does not answer my question:


"Should XYZ plc be able to avoid tax on the unrealised gain in ABC Ltd and add the additional £150,000 paid for the shares to the asset's base cost?"

Please give an exposition of how XYZ plc might do this successfully. Or is the unrealised gain embedded without any means of offset when it comes to sell/transfer ownership ?

Expert:  bigduckontax replied 2 years ago.
XYZ Ltd does not have to do anything until a disposal by that company takes place as no tax arises. Unrealised gains are outside the scope of UK taxation.
Customer: replied 2 years ago.

Thank you but I do understand that an unrealised gain does not give rise to tax. That was not my question.

Surely you can see that the whole point of my question is to anticipate the position when a gain does have to be realised.

So please advise on how to avoid tax on the uplift from £450k to £600k when this situation arises - within either ABC or XYZ. (Clearly, I will already have attracted personal CGT on this difference when selling the shares).

Expert:  bigduckontax replied 2 years ago.
With respect, tax on these gains when realised cannot be avoided. They form part of the trading income of the company involved as companies are not subject to the CGT regime.

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