Sale of shares in trading company with high cash and CGT.

[jim1]

I have heard that if a trading company has surplus cash which is more than 20% of its assets then on sale of its shares the CGT will be higher than if cash was low. I have also heard that if I form a second company to own shares in the trading company and transfer the cash as dividends into it, I will at least preserve the lower CGT on the sale of shares of the trading company. Although I understand the logic behindn this, I am bit cautious as to whether this scheme is acceptable by the taxman. Any advice please or suggestions? Thanks.

[Simon Sweetman]

This is much too simple. If you sell shares in a trading company then the amount of cash held is just one of a number of factors to be taken into account, and merely holding more than 20% of the assets in cash would not make the shares "non-business" assets for CGT taper relief.

If you form a holding company you have then got to gift or sell it the shares in the existing company. You can hold over the gain at this point but then that company sells the shares in the trading company - and pays tax, probably at a higher rate.

Before you consider getting complicated, you need to know whether you have a problem !

Somebody needs to look at the accounts and history of the trading company. You could contact me on simon.sweetman@btinternet.com