Incidental expenses - multiple vendors

[pcg007]

Hello everyone,

I have been trawling the books to see if I can come up with an answer to this one but without luck.

The situaltion is as follows:

A private company is being sold. It is a sale of shares and there are multiple vendors, all members of the same family.

There are incidental expenses relating to the expenditure, mainly professional fees. My instinct tells me that these expenses should be apportioned between the vendor shareholders in proportion to their shareholdings.

My question is: can the incidental expenses be apportioned in any other way?

The family want the majority of expenses to be apportioned to one shareholder, who is non-resident, so that he may minimise the penal rate of CGT in the country in which he is resident (granted the CGT rules there may be different).

Thanks in advance for your comments!

pcg007

[mullet]

There are incidental expenses relating to the expenditure, mainly professional fees. My instinct tells me that these expenses should be apportioned between the vendor shareholders in proportion to their shareholdings.

In strictness in proportion to the amount of disposal consideration received, which may well be the same thing. This applies only to common expenditure which is equally shared by all. But there will always be variations. Say that there is a legal dispute about title, but that one co-owner's situation is more complicated and requires more time/expense to sort out. Then a different basis of apportionment would be reasonable.

In the OP's situation, a penal CGT rate is not a valid reason for apportioning unevenly. The legislation (Section 38(1)(c) TCGA 1992) talks of "the incidental costs to him of making the disposal". Which points to equal apportionment unless some special circumstances (as in my example above) apply.

[section 44]

Are you talking about how the expenses should actually be shared or how they should be treated as being shared for tax purposes?

The expenses are actually shared, as agreed between the parties. With professional fees it ought to be clear who the recipient of the service is (know your client rules?) and who is paying what.

There would be no deemed alternative apportionment for tax purposes.

The family want the majority of expenses to be apportioned to one shareholder

and that would be correct, provided that that shareholder actually incurred the majority of the expenses.