Entrepreneur’s relief Capital Gain and non voting shares

[asimmalik78]

Dear All,

Interesting questions. Hope some one can help.

A client of mine is selling his limited company for £300,000. The company has 10,000 voting rights share of £1.00 each (say base cost of £10,000). Husband who is a director owns 70% and wife owns 30%.

The company also has 2000 non voting shares of £1.00 each which are held in the trust for the benefits of the grandchildren. The wife is not an officer or an employee of the company. Two questions.

1 By the look of it the wife can not claim the Entrepreneur’s relief because although she owns 30% of the company (assuming the value is only associated with the voting rights), however she is not an officer or employee. Can the share be transferred to husband so that he can claim entrepreneur relief on the whole gain
2 How do we prorate the proceeds to non voting rights? Fact is that the trustees are simply transferring the share to the new owners.

Any help will be appreciated.

Regards

Asim

[AvocadoK]

Dear Asim

1. Yes, the wife can transfer shares to husband, who will get ER on the whole gain. Wife could retain some shares to use her annual exemption.

2. In the absence of any shareholders agreement that says otherwise, I would apportion the whole sale proceeds over the 12,000 shares, i.e. £25 per share. The fact that the trust shares are non voting would not have much if any effect on their value, since a 16.67% holding would not have any influence even if they were voting. The trustees would not be acting in the best interests of the beneficiaries if they accepted less.

Regards

AK