Redistributing shares
Discussion
Apologies in advance if this is a very straightforward question but I'm looking for advice on what must be a pretty common situation.
We have a family business, (private ltd co) started by my parents 40 yrs ago. I have worked here for many years, am a director but only a 1% shareholder (my brother, who doesn't work with us, and I have held 1% each since we were children, the other 98% is held by my parents).
We'd like to reallocate the shares to give me a larger stake. How does one go about this and would there be tax implications?
We have a family business, (private ltd co) started by my parents 40 yrs ago. I have worked here for many years, am a director but only a 1% shareholder (my brother, who doesn't work with us, and I have held 1% each since we were children, the other 98% is held by my parents).
We'd like to reallocate the shares to give me a larger stake. How does one go about this and would there be tax implications?
Essentially, it looks like you are being gifted the shares which means you are obtaining an asset of a specific value for no personal outlay i.e it's not costing you anything.
That in itself is not a taxable event. However, the owners of the shares who are gifting them to you would need to know the value for Inheritance Tax purposes. If none of the owners drop off their mortal coil within 7 years of gifting their share, the gift of the shares falls out of any Inheritance Tax calculations.
That in itself is not a taxable event. However, the owners of the shares who are gifting them to you would need to know the value for Inheritance Tax purposes. If none of the owners drop off their mortal coil within 7 years of gifting their share, the gift of the shares falls out of any Inheritance Tax calculations.
Eric Mc said:
Essentially, it looks like you are being gifted the shares which means you are obtaining an asset of a specific value for no personal outlay i.e it's not costing you anything.
That in itself is not a taxable event. However, the owners of the shares who are gifting them to you would need to know the value for Inheritance Tax purposes. If none of the owners drop off their mortal coil within 7 years of gifting their share, the gift of the shares falls out of any Inheritance Tax calculations.
Sorry to jump in but does this count for shares in a capital investment company as well? I have had advice regarding doing the same with a CIC and have been told that both stamp duty (not a big issue) and capital gains (a bigger problem) will be payable.That in itself is not a taxable event. However, the owners of the shares who are gifting them to you would need to know the value for Inheritance Tax purposes. If none of the owners drop off their mortal coil within 7 years of gifting their share, the gift of the shares falls out of any Inheritance Tax calculations.
janesmith1950 said:
Does the same IHT issue apply if the company issues new shares and grants them to the OP (therefore diluting the other shareholders), rather than the parents gifting existing ones?
Not IHT, but this would be CGT as he's getting a gain without paying for it.IHT route would be easiest so long as everyone in good health (maybe look at IHT insurance), otherwise look at an EMI scheme.
JamieBeeston said:
Not IHT, but this would be CGT as he's getting a gain without paying for it.
IHT route would be easiest so long as everyone in good health (maybe look at IHT insurance), otherwise look at an EMI scheme.
Wouldn't the CGT be payable only on exit rather than when they're allocated? However they're allocated, wouldn't a growth in value between allocation and exit be taxable (and potentially subject to entrepreneur tax relief)?IHT route would be easiest so long as everyone in good health (maybe look at IHT insurance), otherwise look at an EMI scheme.
Electronicpants said:
If your a trading business the shares will transfer to you uppon your parents death anyway with no IHT? Why risk the hassle of the 7 year countdown?
Hi, is this because they would transfer to me as the beneficiary of their general estate or for another reason?If so then that would presumably mean they're split between my brother and I, each ending up with 50% which wouldn't be good as he's never worked here and it's a business I've built up substantially over last the dozen or so years (he'd totally agree with this, there's no issue or argument on that side of things).
If we were to just leave it until that point I would also assume they would transfer to us/me at their current value at that point, and hopefully the business will have grown further so there would be a larger IHT liability which doesn't sound ideal.
There's also the issue of paying dividends at the moment not being ideal at all bearing in mind I only own 1%, so we would like to try and tackle it sooner rather than later.
Definitely need specialist advice and not just a general accountant, you need a specialist in Corporate Finance/Tax, far too many factors to consider on an internet forum.
Tax status/income/estate size of parents. Age of parents, health issues.
Same points for you. Spousal shares for your partner if married.
Entreprenuers relief considerations for the future. Maybe your other siblings coudl get the minimum for Entrepreuers relief then sell to you in the future and they get that relief and you get 100% a few years down the line.
Various ways of gifting you parts of the company. Maybe transfer of trade and assets to a newco might be a better structure depending on many factors e.g. could EIS or SEIS be used for a newco.
Maybe it's a good time to tender out the annual tax and accounting advice for the company and you personally. Part of their pitches will give you the basic knowledge you seek as to what the options are.
Where int he country are you based I'm sure people can recommend people locally and what size of firm are you (people and employees), it's good to match the size of the company to the size of the accountancy practice i.e. tiny SME's don't need Big 4 advice.
Tax status/income/estate size of parents. Age of parents, health issues.
Same points for you. Spousal shares for your partner if married.
Entreprenuers relief considerations for the future. Maybe your other siblings coudl get the minimum for Entrepreuers relief then sell to you in the future and they get that relief and you get 100% a few years down the line.
Various ways of gifting you parts of the company. Maybe transfer of trade and assets to a newco might be a better structure depending on many factors e.g. could EIS or SEIS be used for a newco.
Maybe it's a good time to tender out the annual tax and accounting advice for the company and you personally. Part of their pitches will give you the basic knowledge you seek as to what the options are.
Where int he country are you based I'm sure people can recommend people locally and what size of firm are you (people and employees), it's good to match the size of the company to the size of the accountancy practice i.e. tiny SME's don't need Big 4 advice.
Mr Overheads said:
Definitely need specialist advice and not just a general accountant, you need a specialist in Corporate Finance/Tax, far too many factors to consider on an internet forum.
Tax status/income/estate size of parents. Age of parents, health issues.
Same points for you. Spousal shares for your partner if married.
Entreprenuers relief considerations for the future. Maybe your other siblings coudl get the minimum for Entrepreuers relief then sell to you in the future and they get that relief and you get 100% a few years down the line.
Various ways of gifting you parts of the company. Maybe transfer of trade and assets to a newco might be a better structure depending on many factors e.g. could EIS or SEIS be used for a newco.
Maybe it's a good time to tender out the annual tax and accounting advice for the company and you personally. Part of their pitches will give you the basic knowledge you seek as to what the options are.
Where int he country are you based I'm sure people can recommend people locally and what size of firm are you (people and employees), it's good to match the size of the company to the size of the accountancy practice i.e. tiny SME's don't need Big 4 advice.
Thank you. SW London/Surrey. 6 people. Not quite Big 4 but currently with a top 20 central london firm and paying far too much (been with them about 30 years and they're far too big for our needs now in my opinion).Tax status/income/estate size of parents. Age of parents, health issues.
Same points for you. Spousal shares for your partner if married.
Entreprenuers relief considerations for the future. Maybe your other siblings coudl get the minimum for Entrepreuers relief then sell to you in the future and they get that relief and you get 100% a few years down the line.
Various ways of gifting you parts of the company. Maybe transfer of trade and assets to a newco might be a better structure depending on many factors e.g. could EIS or SEIS be used for a newco.
Maybe it's a good time to tender out the annual tax and accounting advice for the company and you personally. Part of their pitches will give you the basic knowledge you seek as to what the options are.
Where int he country are you based I'm sure people can recommend people locally and what size of firm are you (people and employees), it's good to match the size of the company to the size of the accountancy practice i.e. tiny SME's don't need Big 4 advice.
Before you ditch them I think you should at least talk to them about your proposals. They should be big enough to have a few specialists in corporate disposals. Small one man band accountants (like me) may be cheaper but we don't get enough ongoing practice in dealing with these types of scenarios.
The transaction is between connected parties, therefore regardless of what you pay for the shares, your parents will be deemed to have sold them to you for their market value. Depending on the status of the company etc, they might get ER.
They might get BPR for IHT purposes if the company is a trading company.
Stamp duty will be due on any consideration, ie, if the shares are gifted, no SD is due on the acquisition.
The most tax efficient way to acquire them might be that both your parents gift an amount which gives rise to a gain up to their nil rate capitals gains band now, and repeat every 6 April until you have the required percentages
They might get BPR for IHT purposes if the company is a trading company.
Stamp duty will be due on any consideration, ie, if the shares are gifted, no SD is due on the acquisition.
The most tax efficient way to acquire them might be that both your parents gift an amount which gives rise to a gain up to their nil rate capitals gains band now, and repeat every 6 April until you have the required percentages
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