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Where Taxpayers and Advisers Meet

CGT on Profit from share sale

neo1981
Posts: 3
Joined: Mon Oct 07, 2019 8:47 pm

CGT on Profit from share sale

Postby neo1981 » Mon Oct 07, 2019 8:57 pm

I recently received a payout of £60,000 from the sale of preference shares in a company. These shares cost me £2,000 originally.

I am a higher rate taxpayer and my wife is a basic rate taxpayer - we both complete self assessment.

How much CGT should I be paying in this profit? Am I able to gift some of my payout to my wife to reduce the CGT we would pay?

Jholm
Posts: 108
Joined: Mon Mar 11, 2019 4:22 pm

Re: CGT on Profit from share sale

Postby Jholm » Tue Oct 08, 2019 9:48 am

Proceeds of 60k, less cost of 2k, less annual exemption of 12k leaves you with a taxable gain of 46k. This would be taxed at 20% so £9,200 payable. This assumes you don't qualify for entrepreneurs relief and there are no other allowable costs.

You cannot split to your wife post-disposal. This would have had to be done prior to selling.

neo1981
Posts: 3
Joined: Mon Oct 07, 2019 8:47 pm

Re: CGT on Profit from share sale

Postby neo1981 » Tue Oct 08, 2019 10:41 am

Many thanks for your reply.

So there's no way I can use my wife's 12k allowance as it's post disposal? That's so annoying!

AnthonyR
Posts: 321
Joined: Wed Feb 08, 2017 2:33 pm

Re: CGT on Profit from share sale

Postby AnthonyR » Wed Oct 09, 2019 4:42 pm

You could have used it if you gave her shares prior to sale, but I assume the sale documents have been concluded with only you as a seller.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

neo1981
Posts: 3
Joined: Mon Oct 07, 2019 8:47 pm

Re: CGT on Profit from share sale

Postby neo1981 » Wed Oct 09, 2019 6:39 pm

Yes unfortunately that option was not available to me around the sale.

One further question on this, these shares were in the company I worked and still work for - I was involved from the start up, at that point some shares were sold to me for 1p and the rest I had to purchase at a later date for £10 each. I have been advised that HMRC might argue that we only had the opportunity through our employment and so it should be taxed as income tax. Does anyone think this is likely? The share payout was direct into my bank and nothing to do with my salary.

Obviously the tax difference could be substantial so I''d be interested in another opinion on this.

AnthonyR
Posts: 321
Joined: Wed Feb 08, 2017 2:33 pm

Re: CGT on Profit from share sale

Postby AnthonyR » Mon Oct 21, 2019 11:29 am

This is to do with the employment related securities rules. These are very widely drawn up and catch the majority of employee situations when staff get shares (the only time it doesn't apply tend to be where the award is clearly as a result of family transactions rather than employment relationships). Many people assume 'Founder Shares' don't fall under these rules, but unfortunately HMRC believe that even these are caught.

The issue is around the value you paid for them on day 1. If you were provided with the pref shares at a discount then this discount is taxable on you at the time you are given the shares.

So if you bought 100 shares for £0.01 (£1) and they were really worth £10 each (£1,000) then you've had a discount of £999 which is immediately taxable on you as income (on purchase - not sale).

If you later sell them for £20 each the gain from market value at acquisition (£1,000) to sale is taxable under CGT rules - so £1,000 * 20% = £200. However, bear in mind you've probably got £400 of unpaid income tax from the original issue.

Obviously if they were worth 1p at the time of initial purchase and that increased to £10 for the later purchase there's no issues, but with round figures like this it's unlikely to be accurate valuations.

The other thing to consider, after all the above, is that the payment in relation to the preference share may have rolled up dividends which would be taxable as income in any event.

I'd suggest that you (or your employer) takes some professional advice on the subject.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk


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