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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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In 2010 My son was given the option to purchase shares in the

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In 2010 My son was given the option to purchase shares in the privately owned & unlisted company he worked (and still works) for at a preferential price of £1.00 per share. In order to take advantage of this offer I provided a loan of £10,000 to enable him to purchase 10,000 shares which he has held since issue and which have provided annual dividends of approx X £1000 pa.
In 2014 the company was subsequently floated on the London stock exchange at which time my son agreed to the companies request to hold onto his shareholding for a period of 12 months from the flotation date of June 2014. This holding period has now fully elapsed and so allows him to sell the shareholding at any time.
The current value of the shares, which currently are all held in my son's name, is now approx £5.00 per share so now making the original investment worth approx £50,000.
My son now wishes to purchase a house and proposes to use the proceeds of the investment within the next year to provide the required deposit.
Based on the above we wish to establish the most tax efficient method of releasing the equity value of the shares.
For this I can confirm that:-
My son is married with 2 children and is a higher rate tax payer with only nominal other interest earning accounts such as bank savings etc.
My daughter in law is a part time teaching assistant with earnings of approx £2,750 in the current tax year so well below the minimum level for tax.
My queries in this regard are
In this circumstance how will CGT be calculated. We are assuming that it will be in the difference between the original £10,000 investment and the total value on the sale of the shares.
Can the fact of the loan provided by myself to purchase these shares be used in any way to minimise my sons tax liability on these?
Can my son transfer ownership 50% of the shares to his wife now and therefore take advantage of her CGT allowance in this or the next tax year?
As my daughter in law's earnings are well below the tax threshold can my son utilise the balance of her standard tax free allowance as well as her CGT allowance to offset his own liability?
Would it be advisable to encash 50% of the shares in the 2015/6 tax year and the balance after 5th April 2016 therefore in the 2016/7 tax year thereby using 2 separate tax years CGT allowance.
If this last point is valid the advantage of transferring 50% of the shareholding to my Daughter in law and having effectively both individuals tax allowance for both years would seem obvious. Could this be a solution?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Let me take a look at this and I'll get back to you.
Expert:  TonyTax replied 1 year ago.
Hi. Let me take a look at this and I'll get back to you.
Expert:  TonyTax replied 1 year ago.
Hi again.
The gain will be disposal proceeds less purchase price less costs of disposal, if any. If he paid income tax when he exercised the option if that's what it was or he paid income tax because he was offered a discount, then the sum on which he paid tax will be added to the cost of the shares. I'm afraid that the loan cannot be taken into account when calculating the capital gain but he can transfer shares to his wife on a no gain, no loss basis. They can then be sold over one or more tax years to utilise the annual CGT exemption and the lower rate of CGT that your daughter in law will be liable for.
The caveat to the above is if your son acquired his shares through an Enterprise Management Incentive scheme run by his employer. If he did, then he may qualify for entrepreneurs' relief which would limit any CGT to a rate of 10% as opposed to the regular rates of 18%, 28% or a combination of the two depending on the level of his income. Your daughter in law would not qualify for ER as she is not an employee of the company. Take a look at the links below for more information om the EMI scheme:
https://www.gov.uk/government/publications/employee-share-and-security-schemes-and-capital-gains-tax-hs287-self-assessment-helpsheet/hs287-employee-share-and-security-schemes-and-capital-gains-tax-2015#enterprise-management-incentives-emis
http://www.bakertilly.co.uk/publications/Enterprise-Management-Incentive-%28EMI%29-share-options.aspx
I hope this helps but let me knwo if you have any further questions.
Customer: replied 1 year ago.
Dear *****
Thank you for your very prompt response.
With regards ***** ***** option of splitting the shares between my son and his wife. If half of the shareholding is transferred into my daughter in laws name how will the remain shares held by my son be viewed or treated for tax purposes. Will his tax liability then be on the value of shares still held in his name minus the full purchase cost of the total shareholding & subsequent disposal cost of the remaining shareholding after the transfer.
With the shares transferred into my daughter in laws then be liable for their full value, there having been no initial purchase cost on those now held by her as they were a no gain/cost from my son.
As my Daughter in laws earnings are well below the personal tax threshold will she be able to use the "unused" remainder of this to partially offset the benefit of the sale of the shares before the 18% CGT is applied.
i.e. can this "unused" portion of her personal allowance be deducted from the gains achieved from the sale of her shares.
Thank you
Expert:  TonyTax replied 1 year ago.
In my answer I said that the shares would be transferred on a no gain, no loss basis. That's a benefit of marriage.
If your son gives his wife 50% of his shares, she will take 50% of the cost. If he gives her 30% of the shares, she will take 30% of the cost.
Your daughter in law cannot use her personal allowance against capital gains. She will have the annual CGT exemption and that's it.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Thanks for your assistance. I think we now have enough to allow us to decide how best to handle the sale of the shares
Expert:  TonyTax replied 1 year ago.

Thanks and good luck.

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