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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4778
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Early in April 2008 we exchanged contract to sell 75% of our

Customer Question

Early in April 2008 we exchanged contract to sell 75% of our shares in our private limited company. Exchange was rushed in order to preserve our entitlement to exemption from, or reduction of, CGT liability before new CGT law came into effect in April 2008. Unfortunately, when the completion date arrived (July/August 2008) the buyers failed to complete. If we sell 75% of our shares now, how would our CGT liability differ from our liability under the original 2008 contract?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Please advise, were you the original investors in your private limited company?
Customer: replied 3 years ago.

We purchased the company in 1987 from the original shareholders who started the company in 1949. Subsequently in 1992 we purchased a freehold which is now a major asset of the company.

Expert:  bigduckontax replied 3 years ago.
The reason for my question was the possible entitlement to Entrepreneur Relief which limits the tax rate to 10%. Unfortunately you have to be in at the start of operations for the relief so you don't qualify. You could, of course, have taken an action against the prospective buyer as contracts had been exchanged and thus the other party is contracted to purchase which is why one is advised to insure a property immediately on exchange. Still, that's spilled milk now.

Capital Gains Tax (CGT) only rears its ugly head on the disposal of an asset. As shares have yet to be sold it does not arise. Companies themselves are not liable to CGT, any gains being added into their trading as part of the profit or loss and are liable to Corporation Tax.

So if you sell a proportion of your shares you will be liable to any gain made. That is the difference between the price you originally paid for the shares less costs and the price you sell at, again less costs. Each individual has an annual exempt allowance of 11K to offset any gain. This is taxed at 18% or 28% depending on one's income including the gain in the tax year of sale.

With the greatest of respect you seem to be mixing things up with the freehold property aspect. The company owns that and any profit made should the company sell that asset off before the share sale would be part of its income for the trading year in question. If you sell your shares, the freehold remaining in the company, there is no gain in the company's accounts. The gain made on the share sale is down to the individuals and their CGT positions. Had the company sold the land in 2008 then there would have been a gain in the company's books of account, but there was not so it's merely hypothetical.