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bigduckontax, Accountant
Category: Tax
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I have a property rental company, it owns property worth £600000

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I have a property rental company, it owns property worth £600000 there is some money in the bank, no creditors. The balance sheet value for this purpose is£600000.
I am sole director, sole shareholder (10 shares of £1 each) they cost me £10 years and years ago.
I now want to split the ownership of the company between me and my two adult children.
I am told that if I give them 3.3 shares each I will be liable to capital gains tax on about £400000.
Can I arrange for the company to issue to my two children 10 shares each at par (£1 each).
They would then own one third of the company each worth £200000 each.
I would own 10 shares still but their value would have fallen by £400000 to £200000
Wouldn't I have to pay any tax?
Hello, I'm Keith and happy to help you with your question.
The company, its directors and its shareholders are all separate legal persons.
Assuming that the company has shares available for issue, if not get the Articles of Association amended, then it could issue new shares. Under the Companies Act 2006 companies no longer need to have an authorised number of shares, but an old company would have to have its Articles amended. If you disposed of your shareholding to them then you would, as you surmised, be liable for Capital Gains Tax (CGT) on any gain made.
In these circumstances I cannot see that you have any tax liability. HMRC may well not like it and you might be in for a battle in the long term. The transaction is not one which must be notified.
Here is the advice from the Company Law Club:
'A company may not issue any share at a discount, i.e. may not sell it for less than its nominal value: CA 2006, sec580. Except for this rule, the amount a company charges for the shares it allots will primarily be a matter for negotiation between the company and those buying the shares.'
It thus appears that your proposal is feasible. I would tend to issue discrete numbers of shares, figures like 3.3 will inevitably cause confusion.
I do hope that I have shed some light on your proposal. You will, of course, finish up with diluted stock, but then that is your intention.
Your siblings would, of course, have to pay the company for the shares issued to them.
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Thank you for your support.