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Where Taxpayers and Advisers Meet

Reduce CGT on shares purchased from my employer?

Jse@23
Posts: 5
Joined: Thu Jun 11, 2020 9:16 pm

Reduce CGT on shares purchased from my employer?

Postby Jse@23 » Thu Jun 11, 2020 9:33 pm

About 5 years ago I purchased some ordinary shares in the company I work for (outside of any share scheme but separately I have EMI options).The shares have now gone up considerably and a company sale looks likely in the near future. It looks like I'm stuck with a high rate CGT bill but looking for ways to reduce.

1. I assume I can use my allowance and transfer shares to my partner if we were married? (We are not yet)
2. If the purchasing company offered shares instead of money would that help in any way? Or just defer the inevitable? Or would I pay CGT anyway at the time of exchange?
3. Could I somehow try and transfer these shares into an EMI scheme (assuming my employer was willing)?

Any other ideas? Thank you for your help!

jerome.lane
Posts: 227
Joined: Mon Aug 12, 2019 8:41 am
Location: Sandhurst, Berkshire
Contact:

Re: Reduce CGT on shares purchased from my employer?

Postby jerome.lane » Fri Jun 12, 2020 7:56 am

1. If you are married, then unlimited transfers would be on a no gain no loss basis. Otherwise you can use your CGT annual exemption although subsequent transfers could potentially be caught by anti avoidance.
2. Share for share exchanges on a take over should defer CGT. Any cash element would be subject to tax.
3. I don’t think so. CGT is likely to be 20% on non EMI shares

At the point you realise a gain, you may consider EIS or similar investments where reinvestment relief is available although this comes with some risk, ties up cash and is like kicking a can down the road.
Jerome Lane
Tax Adviser
Telephone: 07943 005902

Jse@23
Posts: 5
Joined: Thu Jun 11, 2020 9:16 pm

Re: Reduce CGT on shares purchased from my employer?

Postby Jse@23 » Wed Jun 17, 2020 7:26 pm

Jerome, thanks for your reply.

1) but when would I transfer? (It can't be now as I believe they have clauses that I can't sell / transfer them privately)
2) could the share for share exchange somehow be with EMI shares?
3) thanks
4) very interesting, I didn't realize EIS was also CGT efficient. Let's say I had a £100k gain I'd owe %20 or £20k. If I invested the money in EIS shares I might get a %30 rebate so £10k up but a. EIS shares are risky and b. you have to sell them some time (and my understanding is that most of the time EIS shares are for "young businesses" so you have no control of if/when you can actually sell them and you can't exactly slowly sell them to take advantage of CGT allowance)
c) did I understand that correctly?

5) Any other ideas?

Thanks so much for your help!

Jse@23
Posts: 5
Joined: Thu Jun 11, 2020 9:16 pm

Re: Reduce CGT on shares purchased from my employer?

Postby Jse@23 » Wed Jun 17, 2020 7:30 pm

*Thinking about it I guess there are EIS funds out there, do they solve the diversification and liquidity problem I highlight above?

jerome.lane
Posts: 227
Joined: Mon Aug 12, 2019 8:41 am
Location: Sandhurst, Berkshire
Contact:

Re: Reduce CGT on shares purchased from my employer?

Postby jerome.lane » Thu Jun 18, 2020 2:14 pm

Jerome, thanks for your reply.

1) but when would I transfer? (It can't be now as I believe they have clauses that I can't sell / transfer them privately)
2) could the share for share exchange somehow be with EMI shares?
3) thanks
4) very interesting, I didn't realize EIS was also CGT efficient. Let's say I had a £100k gain I'd owe %20 or £20k. If I invested the money in EIS shares I might get a %30 rebate so £10k up but a. EIS shares are risky and b. you have to sell them some time (and my understanding is that most of the time EIS shares are for "young businesses" so you have no control of if/when you can actually sell them and you can't exactly slowly sell them to take advantage of CGT allowance)
c) did I understand that correctly?

5) Any other ideas?

Thanks so much for your help!
1. you can transfer beneficial interest under a deed of Trust which may not be in accordance with the purchase agreement although the deed of gift to your partner could mirror your purchase terms and the company would probably never know anyway (you'd still be the legal seller in the future). A properly executed deed of gift should still satisfy HMRC as to who the beneficial owner is.
2. I can't see how you can share for share exchange like for like shares; you'd have to ask your employers advisors since it may be possible if the shares have different rights attaching. I wouldn't get too hung up on this although its worth asking for your employers views.
4. You understood the principals correctly. Next step is to contact a reputable financial advisor. EIS comes with risks but there are pooled investments out there which spread risk. There are some providers that seem to perform well. I can put you in touch with financial advisors if you want so feel free to message me if you want. I don't give investment advice though.

5) Move to the Bahamas! :lol:
Jerome Lane
Tax Adviser
Telephone: 07943 005902

Jse@23
Posts: 5
Joined: Thu Jun 11, 2020 9:16 pm

Re: Reduce CGT on shares purchased from my employer?

Postby Jse@23 » Sat Jun 20, 2020 10:24 pm

Jerome, thank so much for the replies. Bahamas sounds lovely but I'll have to save that option for my next endeavour...

Anyone else have anything to add that Jerome hasn't covered?

Jse@23
Posts: 5
Joined: Thu Jun 11, 2020 9:16 pm

Re: Reduce CGT on shares purchased from my employer?

Postby Jse@23 » Mon Jun 22, 2020 9:09 pm

What about making multiple sales to my spouse to realise a gain and make use of my CGT allowance? Can I gift it to her and could she sell it back to me? (That way to they would still be in my possession when the company sells and she could use her CGT allowance?)


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