Entrepreneurs relief on company repurchase of shares

[Chaddesley]

A company (A Ltd) is owned equally between two individuals and another company (B Ltd). In turn the same two individuals own B Ltd. 50/50 so their effective ownership of A Ltd. is also 50/50.

They now want to sell their shares in A Ltd at market value either back to A Ltd or to B Ltd. In either case the effect will be that B Ltd. now owns A Ltd. 100% so the two individulas effective ownership of A Ltd. remains at 50/50.

Can the individuals claim entrepreneurs relief on their disposal of the shares in A Limited even though they still own the shareholdings they have sold all be it indirectly now rather than directly?

[AvocadoK]

ER is only relevant if there is a CGT event in the first place.

If the two individuals sell their shares in A Ltd to B Ltd, which they also own, the payment by B will be subject to income tax under the anti avoidance provisions 'Transactions in Securities.' The leading case on this is IRC vs Cleary.

As for a share buy back by A, obviously A can't buy in both shareholdings (otherwise it will have no shareholders!). A share buy back from one or the other of them is capable of being a CGT event if certain conditions are met, but these generally involve the selling shareholder severing connections with the company (e.g no longer a shareholder). Once you have secured CGT treatment, the ER is possible, providing the usual ER tests are met.

Advance HMRC clearance is essential for this type of transaction.

AK

[Chaddesley]

Thanks AK. That has helped no end. My gut feeling was that this transaction wouldn't be eligible but I needed a steer towards the relevant legislation.

In the share buy back scenario A could actually buy back the shareholdings of both individuals as B already holds a 33% stake in A. However, regardless of this both individuals would retain their interest in A Limited (all be it entirely through B Limited) and so would not be eligible for capital treatment on the buyback.