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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I own 10% of the shares in a "trading" company manufacturing

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I own 10% of the shares in a "trading" company manufacturing transformers (which I have owned for about 12 years). I also became a director of this company on April 7th 2015. I entered into a legally binding written agreement dated 28th May 2015 in which I agreed that I would sell my entire share holding back to the company on May 1st 2016, and then make a capital gain of about £50,000. The agreement also specifies that i will resign my directorship on May 1st 2016 when the sale proceeds are received by me.
I have two questions. (1) Will I be entitled to the 10% entrepreneurs capital gains tax relief? (2) When will the capital gains tax be payable?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Take a look at pages 3 and 4 of HS275 here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323651/hs275.pdf You need to have been an officer or employee of the company, own 5% or more of the voting shares and the company must have been a trading company in the one year leading up to the disposal of your shares in order to qualify for entrepreneurs' relief. You don't need to have been a director. If you and the company meet those criteria, then you will qualify for ER. Assuming the disposal occurs in the 2016/17 tax year, the CGT liability will be payable on 31 January 2018. I hope this helps but let me know if you have any further questions.
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Customer: replied 1 year ago.
Thanks for this Tony. I had read somewhere since signing the agreement that the effective date for a Capital gains tax liability is the date the agreement to sell is made (in my case 22.5.15) not the date of the actual disposal of the shares (1.5.16). I was worried, therefore, that if 22.5.15 is taken as the effective disposal date then I would not have the required minimum 12 months service as a director before disposing of the shares. Perhaps what I read refers to the tax year in which the capital gain is deemed to have been made, which would mean that the tax is payable by 31.1.17 (which would not be a problem). The article I read seemed pretty adamant that the capital gains tax date is the date of the sale agreement. What are you your thoughts on this, please?John Rutter
Expert:  TonyTax replied 1 year ago.
The date of sale of the shares for CGT purposes is the date of the contract to sell. An agreement to sell at some date in the future is not necessarily a sale on the day it is signed. A sale occurs when beneficial ownership changes. As it is, the sale is conditional on you resigning your directorship and in such a case, the date of disposal will normally be when all the conditions are satisfied. Look here for the HMRC manual commentary on this. The company cannot sell the shares now as they don't own them yet in my opinion. You might have a lawyer look at the agreement. It's possible that it hasn't been written correctly and the date of disposal is 28 May 2015 in which the case the CGT would be payable on 31 January 2017. As I said in my answer, you don't need to be a director if you are an employee of the company for the twelve months leading up to the sale of the shares, own at least 5% of the voting shares and the company is a trading company in order to qualify for ER.