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Where Taxpayers and Advisers Meet

CGT on sale of limited company

Weeps
Posts:2
Joined:Tue Jan 14, 2025 12:14 pm
CGT on sale of limited company

Postby Weeps » Tue Jan 14, 2025 12:40 pm

In 2017 my business partner and I completed a MBO of our company. The company was valued at £1.9m and I already had a 10% shareholding and my partner 5%, a third investor also joined us. We set up a separate company as the acquisition vehicle and the the purchase was completed using a term loan and invoice discounting facility from the bank, plus £25,000 cash from each of the shareholders.

We have now sold the company and the question has arisen regarding the chargeable gain as we have received two completely different answers from the same tax accountants!

Is the gain the difference between the £1.9m purchase price and the sale price (less costs of sale) or is it the difference between only the value of our original shares (plus the cash) rolled over into newco and the sale price?

Any advice gratefully received.

AGoodman
Posts:1934
Joined:Fri May 16, 2014 3:47 pm

Re: CGT on sale of limited company

Postby AGoodman » Wed Jan 15, 2025 12:00 pm

You don't say whether you've sold the acquisition vehicle or that has sold the trading company. The outcomes are very different.

If you sold the acquisition vehicle, your gain will be sale price minus the total price that you personally paid for your shares in NewCo, including the original price you paid for your shares in TradingCo (assuming rollover relief on the MBO). This is probably the second of your two alternatives.

But this appears to be high value and detail is important, so you should be pressing (and paying) your accountants to give a firm answer.

Weeps
Posts:2
Joined:Tue Jan 14, 2025 12:14 pm

Re: CGT on sale of limited company

Postby Weeps » Wed Jan 15, 2025 2:52 pm

Thank you for your reply. The trading company continued as usual and became a wholly owned subsidiary of the holding newco. Newco was sold together with the trading company. Shares originally purchased in the trading company and representing 15% of its original value were rolled over into newco together with a further cash consideration from each of the shareholders. Further shares were issued in newco for a nominal value of 0.01 and a new shareholding structure established. Tax clearance was obtained. The two opposing views we have obtained regarding the "base cost" for CGT purposes is that a) The full original value of the trading company can be used, or b) only the rollover value of the shares plus the cash can be used.

If the latter is the case, which I suspect it is, it seems a little unfair to me that whilst the bank funded 85% of the acquisition through newco, we had to repay the funding through profits that we generated in the trading company which would otherwise have belonged to us.
Many thanks


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