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bigduckontax
bigduckontax, Accountant
Category: Tax
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Its being proposed i sell my shares to my business partner

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Hi, Its being proposed i sell my shares to my business partner in a Management BuyOut. The company is a UK LTD company without any financial debt.
The share structure is as follows:
*There are 2 x A class shares with voting rights distributed between myself and my partner (2 sole directors).
*there are 100 x B class non voting, non capital renumiration shares owned by another employee.
There is approx £1m in the bank (minus VAT+Corp Tax).
As part of the MBO its being proposed i get bought out with an initial consideration of £1m then a differed consideration of a further £1m over 2years paid monthly. now here is the issue / question i have:
Its proposed that I am not entitled to 50% of the cash in bank as my partner wants to use this cash to fund part of the buy-out. He will be obtaining a bank loan of £500k to fund the buy so in total there will be £1.5m of moneys.
If he pays me £500k from bank loan and 500k from cash in bank(my share) in purchasing my shares as part of the initial consideration. Then Over the 2 years, I will receive a further £1m in monthly instalments.
so my question is, how much of the total £2m qualifies for entrepreneur's relief @ 10%?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Here is the advice from ***** *****, Gabelle LLP: 'The seller’s position should also be considered. If there is a single contract to sell all his shares, with consideration payable in installments, a capital gain will crystalise on the date of the contract. All the capital gains tax liability will then fall due on the following 31 January.' Thus the capital gain will be assumed to be the day of the first payment and thus Entrepreneurs Relief at 10% will apply up to a lifetime limit of GBP 10m. I do hope that you find me reply of assistence.
Customer: replied 1 year ago.
I'm sorry this does not answer my question. I want to know how much of the £2m would be payable as capital gains (if any) and how much would be at the 10% ER?
Expert:  bigduckontax replied 1 year ago.
Your question was: 'so my question is, how much of the total £2m qualifies for entrepreneur's relief @ 10%' My reply was that the relief would be available providing you do not breach the lifetime limit. If you do not then 2m would be entitled to the relief.
Customer: replied 1 year ago.
So would I pay £200k as long as I don't exceed the lifetime limit? Or is there some capitals gains I need to pay which would alter the amount of ER I would pay?
Expert:  bigduckontax replied 1 year ago.
The ER settles the Capital Gains Tax (CGT) liability at the 10% flat rate as you are going out of the business.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 1 year ago.
Thank you for your excellent support.

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