Value of company shares when transferring

[craigthornton]

Our company has 100 ordinary £1 Shares issued and £1 was paid for each of these when the company was formed.
Some of the members now want to transfer their shares. They are wanting to sell them for just £1 (it is inter-family!) but our balance sheet shows Shareholder funds of just over £100,000.
Would HMRC accept the payment of £1 for the transfer or would they value them at £1,000 each causing a Capital Gain for one of the members who has 40 shares?

[JSK TAXATION]

craigthornton,

Because it appears the transactions are between 'connected parties' for tax purposes they will be treated as being made at market value. Market value in this instance is unlikely to be calculated by simply dividing existing shareholders' funds by the number of issued shares. The value of goodwill and net assets combined would need to be ascertained and apprortioned appropriately in terms of each shareholding being sold.

Another issue to consider is inheritance tax since transferring assets at under value is effectively a gift.

Lastly, it is possible HMRC may even take the view that the transactions are subject to the employment related securities rules should the recipients be employees or directors of the company. This would import PAYE tax on the difference between market value and what is paid for them.

Please take good advice (!) and if I can help further please do let me know. Kindest regards,

John S King
Chartered Tax Adviser
www.taxation-advice.com