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Ask Mo Tax Expert Your Own Question
Mo Tax Expert
Mo Tax Expert, Accountant
Category: Tax
Satisfied Customers: 721
Experience:  Accounting and Tax Expert
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Our client is wanting to retire from his business over the

Customer Question

Our client is wanting to retire from his business over the next five years. His son works in the business and he is wanting to gradually transfer his shares over to him (and his daughter who does not work in the business). This transfer will be in chunks. Is there a way he can do this in a structured way, that allows him to claim Entrepenuers Relief?
JA: Have you talked to a tax professional about this?
Customer: No.
JA: Is there anything else the Accountant should know before I connect you? Rest assured that they'll be able to help you.
Customer: No.
Submitted: 8 days ago.
Category: Tax
Expert:  Mo Tax Expert replied 8 days ago.

Hi and welcome to JustAnswer. I’m Mo, a Qualified Accountant and Tax Expert. I’m currently reviewing your question and will respond to you shortly.

Thank you for your patience.

Expert:  Mo Tax Expert replied 8 days ago.

Please confirm the total amount of shares, the share price, and the potential gains?

Customer: replied 8 days ago.
There are 100 shares in issue. The Father owns 75% and his Wife owns 25%. The company was recently valued at £1.6m.
Customer: replied 8 days ago.
The company has been running for many years and was started by the father, so the nominal value of the shares is the base cost for CGT. So quite a big gain.
Expert:  Mo Tax Expert replied 7 days ago.

The maximum you can claim is a total of £1 million in business asset disposal relief in your lifetime.

Customer: replied 7 days ago.
I know. But there are two shareholders. So even at 75% he may just be over the relief, but can pay tax on the diff. But he could gift some shares to the kids prior and be within ER. The issue is not the ER. It’s the transfer of the shares in trances, so to qualify for ER. ‘Substantial Holding’ clause. Was wondering if there is a process or tax approach to minimis tax on partial disposals.
Expert:  Mo Tax Expert replied 7 days ago.

Thank you for your patience.

Usually, when you sell the shares, HMRC will first evaluate whether you qualify for a tax-free capital gains allowance (currently £12300). After that, reduce the amount of capital gains tax allowance from the gains you earned after selling the share The capital gains tax will be paid on the remaining sum (Remaining sum = Capital gains – Capital gains tax allowance).

Children's shares will be taxed by HMRC. You are exempt only if you gift the shares to your spouse, civil partner, or a charitable organisation.Inheritance tax– While transferring shares to your children, they are normally treated as gifts for inheritance tax purposes. If the transferor (parent) dies within seven years after making the transfer, the transferee (child) will be responsible for the inheritance tax.

The amount of tax due will be determined by the number of years between the date of the gift and the date of death. It is based on a sliding scale known as taper relief: 40% for less than three years, 32% for three to four years, 24% for four to five years, 15% for five to six years, and 8% for six to seven years.

Additionally, if you transfer shares to your children for less than market value, the difference between the sale price and market value is often treated as a gift by HMRC. This type of gift is referred to as a Potentially Exempt Transfer (PET) and will be subject to the standard inheritance tax rules.

Customer: replied 7 days ago.
Thanks again for that. So what is the most tax effective way for him to transfer his and his wife’s shares to the children
Expert:  Mo Tax Expert replied 7 days ago.

Thank you for your patience.

When you gift shares to your spouse, HMRC exempts you from capital gains tax. Usually, you are not liable for capital gains tax if you gift 5000 shares to your spouse at the new price. If your spouse decides to sell these shares to any other person, it’s essential to pay capital gains tax.

For children, this is not the case. Childrens shares will be taxed by HMRC. However, you may transfer the shares in batches to utilise the yearly exemption. 

Customer: replied 7 days ago.
Thanks again for that. So what is the most tax effective way for him to transfer his and his wife’s shares to the children.
Expert:  Mo Tax Expert replied 7 days ago.
You are asking the same question.

This platform is an adhoc tax advisory service.

If you want a full step-by-step schedule of how to extract or transfer shares.

Additional service would apply.

Customer: replied 7 days ago.
Ok. Thanks.
Expert:  Mo Tax Expert replied 7 days ago.

Thank you for the inquiry. It is my pleasure to assist you today.