Returning capital to shareholders in a Ltd co

[barchetta_boy]

Hi everyone,

This forum was incredibly helpful for me recently on a CGT question (Capital Gains Tax, not Carrera GT sadly) for which thanks again - and I'm hoping it can help me a 2nd time.

Situation is a Ltd Co, going concern, owned by 2 shareholders of which I am one. There is approx £2m of retained earnings on the balance sheet and 1,000 ordinary shares. We don't need the full £2m for working capital, and we are also changing the share structure of the company to create a new class of "A" shares that will have rights to all future profits and any sale of the company (less the retained earnings at time of new share issue, which we are designating 'reserved capital'). We are creating this new share structure so that we can give shares to 2 minority shareholders without giving them the existing capital, which belongs to the founder shareholders and which would attract a large tax bill for our new shareholders.

That is for background, but my question is slightly different: irrespective of the new share structure, can we reduce our Ordinary share issue from say 1,000 shares to 500, and return £1m to shareholders, attracting CGT at 10% (Entrepreneur's Relief) rather than 32.5% income tax?

Many thanks,

BB

[wattsm666]

Look at share buybacks, generally treated as a distribution (income tax) unless certain criteria are met. One of them is that the shareholder has no real interest after the buy back.

Speak to your accountant, but probably unlikely to work.