Capital gains tax

[nickbrieger]

At the end of 2008 I retired as a director of a private limited company. According to our accountants at that time, I was entitled to:
- long-term loan account (representing the amount payable for goodwill when the business was incorporated on 31 December 2003)
- short-term loan account (representing the amount payable for goodwill accrued since incorporation)
- an amount for my share of the amortisation of goodwill since incorporation
In addition, there was an agreement in place between the directors that I was to continue to receive an income dividend based on a notional 5 shares' profit for 4 years after retirement.
All the moneys were to be paid to me over a 4-year period.
At the end of the term, the company would then buy back these shares from me.
Our accountants advised me that, depending on my other income in a relevant tax year, my liability for CGT would be between £1500 and £4500.

In 2009, after my retirement, new accountants were appointed. They declared the previous arrangement whereby I retained shares in the company after my retirement illegal / unlawful. The new accounts therefore proposed a new arrangement to the remaining directors, which was accepted. The basis of this new arrangement was that my shares be bought back (at some point in 2010). To the best of my knowledge, this was duly carried out.

The current position is:
1. due to a restructuring of the repayments I have only received 50% of the moneys owing (this is not disputed)
2. I have been advised by my personal accountant that I am liable for £15K tax on 31 January, being my liability for the capital gain on the sale of my shares (which took place, I guess, in 2010)

I would appreciate clarification on:
- what elements of the retirement package are subject to CGT
- what the appropriate rate of CGT should be
- whether the new accountants gave appropriate advice as to the (il)legality of the old arrangement whereby I retained 5 shares in the company after my retirement.

[mullet]

I would appreciate clarification on:
1. - what elements of the retirement package are subject to CGT
2. - what the appropriate rate of CGT should be
3. - whether the new accountants gave appropriate advice as to the (il)legality of the old arrangement whereby I retained 5 shares in the company after my retirement.

1. It's difficult to say with any degree of certainty, and I am not clear about precisely what you are receiving payment for. You should have declared a disposal of goodwill from your business when you incorporated in 2003 and paid any appropriate CGT at that time. Did you? The payment by the company of the money owing to you has no tax consequences. I am not sure what you mean by "amount payable for goodwill accrued since incorporation" ... that would be the company's goodwill. Was there something in the original agreement for you to receive payment (probably unascertainable deferred consideration) at a later date depending on the company's performance or profitability? If so, the CGT position gets complicated.

2. It depends on your income in that year. It could be 18% or 28%, or 10% if entrepreneurs' relief is in point.

3. There is nothing illegal about retiring from an employment or directorship and still being a shareholder. It might be against the company's "rules", but that's not law.

[Incredulum]

1. You should have declared a disposal of goodwill from your business when you incorporated in 2003 and paid any appropriate CGT at that time. Did you?

Could he not have rolled over any gain on the goodwill?


OP. Without any numbers it is impossible to say whether there is any logic to a tax charge of 2k or 15k...

[mullet]

Could he not have rolled over any gain on the goodwill?

Yes, but he has not said that there was reinvestment in a replacement qualifying asset. And even if rollover relief was in point, he would still have to have declared the disposal and claimed the relief.