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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My mother and I both own shares in our family business. She

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My mother and I both own shares in our family business. She wishes to gift 25% of hers to me. Would this gift be subject to capital gains tax. It was suggested by another family member that there is potential for an inheritance tax liability, however looking at the HMRC website I understand that the shares would be subject to CGT based on the market value of the shares.
The shares had an issue value of £1 approximately 45 years ago. Under the articles of association, the holding of the shares is restricted to family members so they cannot be traded as such.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi Thanks for your question Yes there would be a capital gain liability arising on your Mother for this gift to you - however she may be entitled to entrepreneurs relief to reduce the charge of capital gain tax down to 10%The fact these can only remain within the family has no bearing I am afraid. I have added a link here for more information on the entrepreneurs relief and what qualifies an individual to thishttps://www.gov.uk/entrepreneurs-relief/eligibility Then we have Inheritance tax, which also will be considered should your mother not survive more than 7 years from the date of making this gift and this is based on the value of the shares at the time the gift is made - and this information should be notified to any solicitor that holds your mothers will - or at least retained with the will.This gift would be known as a potentially exempt gift - as after 7 years have passed is is no longer considered as part of your Mothers estate, but should be not survive more than 7 years then it forms part of her estate (although tapers off is its more than 3 years since the gift was made.More about Inheritance tax and Taper relief here https://www.gov.uk/inheritance-tax/gifts So you would need to get the shares valued to establish their worth now Let me know if I can be of any further assistance ThanksSam
Sam, Accountant
Category: Tax
Satisfied Customers: 14004
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 2 years ago.

Hi Sam,

I was satisfied with the speed and content of your reply to my question, however now I am not so sure.

Your reply states that the fact the shares cannot be traded has no bearing, but I had an inkling this was not the case hence I put this information in when asking the question.

I have now discovered on the HMRC website very clear guidance that CGT is normally due on the gifting of shares, however Gift Holdover Relief can be applied to shares in unlisted companies. Further research indicates this is covered by Section 165 Taxation of Capital Gains Act.

I conclude that your reply was either incorrect or incomplete, and therefore am no longer satisfied with your reply not belief I should have to pay for the advice received.

I await your response, however in the meantime I intend to click on the link "not satisfied with your expert" and see where this takes me.

Regards,

Jim

Expert:  Sam replied 2 years ago.
Hi Jim Thanks for your responseWhy you would wish to do this, when this would then increase the Capital gain position - as your mother would be due entrepreneurs relief - meaning the capital gain would be liable at just 10% and by rolling this over - you would potentially pay capital gains at either 18% or 28%?? And still have an Inheritance tax position to potentially contend with I believe in offering the most tax efficient advise and can only apologise if you wished me to provide advise that was neither cost effective or in you or your mothers best interests. I agree on that basis my answer was incomplete but as this advise was not the best course of action as entrepreneurs relief would be lost - then I prefer to offer advise that is tax efficient based on the information given. ThanksSam
Customer: replied 2 years ago.

Sorry Sam, I feel more dissatisfied by this follow up answer.

My original question asked whether there was a Capital Gains Tax liability if my mother gifted her shares to me. I did not share any information regarding either my or my mother's age or status within the company other than as shareholders. The important detail was that the shares in the Company cannot be traded - which in your reply you described as irrelevant. I was hoping to receive a reply which would have confirmed that CGT has to be paid on the disposal of shares that can be traded "normally" (as I was already aware of this), but also that there was the ability to avoid CGT at source in "closed" companies due to the provisions of gift rollover relief (as I subsequently understand to be the case).

In your second reply you are assuming my mother would benefit from Entrepreneur's Relief. She is neither an employee nor a Director therefore I am unsure why you would suggest this. Conversely I am a Director who holds more than 5% of shares in the Company already. Therefore I am potentially in a much better position to take on any CGT liability. Therefore my question relating to CGT at source was the most pertinent issue and the one I required advice upon. You have also assumed my status as recipient of the shares and made judgement that any gift with rollover relief would be tax inefficient.

Part of the reason for not providing any information other than the basics is that the company is currently negotiating a sale and this is subject to a non disclosure agreement. Hence possession of shares at the time of sale is quite important from a tax liability perspective.

I am aware of the potential Inheritance Tax liability, however given the present value of my mother's estate, IHT will be applicable to both of us if the 7 year (or taper) milestone is not reached.

Jim

Expert:  TonyTax replied 2 years ago.
Hi.

Are you still looking for confirmation of your understanding of the tax situation if your mother gives you 25% of her shares in the family business?
Customer: replied 2 years ago.

Hi Tony,

thanks for your contact. I have the information I require (albeit more through my own endeavours than the advice received). Whilst I was previously unsure about a potential CGT liability due to the proposed transfer, I am assured that gift rollover relief is applicable due to the type of shares involved and this may have its advantages given the circumstances of the potential gift.

thanks,

Jim

Expert:  TonyTax replied 2 years ago.
The information here may be useful.
Customer: replied 2 years ago.

Hi Tony,

thank-you. Your link was to some of the information I also found. My initial query was prompted by the potential future sale of the family business that both my mother and I have shares in. I am a Director with in excess of 5% shareholding whilst my mother is not. I was aware that I would receive entrepreneurs relief on my shareholding if the business was sold and has an inclination that a gifted transfer of shares could be free of CGT but was unsure of the circumstances but thought it might have something to do with the status of shares. I sought advice having read on the HMRC website that "normal" tradeable shares are subject to CGT when gifted.

Regards,

Jim

Expert:  TonyTax replied 2 years ago.
You seem to have what you need so I will leave you to it. There is no need to respond to this message. If you do, I will have to reply.