Will I owe tax on new company shares?
Discussion
I know I need to speak to an accountant, which I am in the process of doing, but in the meantime I would love to tap into the collective knowledge of PH as Google is doing me no favours...
Here is the scenario:
Mr B lives abroad and has a lot of £. I am a UK national and have a lot of expertise in a particular area. Mr B and I set up a UK company, and split the shareholding 50-50.
Mr B provides all the capital to start the business (say, £1m) as a straight equity investment. I put nothing financially into the business.
In this scenario, my understanding is that my 50% share of the company is now worth £500,000.
If that is the case, do I need to pay tax on that £500k, even though there is no cash gain to me and I haven't sold the shares?
(I know we can avoid this by looking at loans instead, but humour me...)
Here is the scenario:
Mr B lives abroad and has a lot of £. I am a UK national and have a lot of expertise in a particular area. Mr B and I set up a UK company, and split the shareholding 50-50.
Mr B provides all the capital to start the business (say, £1m) as a straight equity investment. I put nothing financially into the business.
In this scenario, my understanding is that my 50% share of the company is now worth £500,000.
If that is the case, do I need to pay tax on that £500k, even though there is no cash gain to me and I haven't sold the shares?
(I know we can avoid this by looking at loans instead, but humour me...)
22s said:
In this scenario, my understanding is that my 50% share of the company is now worth £500,000.
Correct, at day 1. However, from there on the value of your shares will move about.22s said:
do I need to pay tax on that £500k, even though there is no cash gain to me and I haven't sold the shares?
Generally speaking the answer is no, so long as the shares are gifted to you by Mr B and not issued to you by the company after he has capitalised the company with £1m. Obviously your base cost for eventual CGT purposes would be "nil".If the shares are issued to you by the company there's a whole raft of legislation which comes into play, broadly around the subject of income tax on their value, https://www.gov.uk/tax-employee-share-schemes
With these of quantums of cash get an accountant.
You'll want to setup company to ensure you get entrepreneurs relief (you should if director) or if not make sure your shares are EMI qualifying.
You setup the company before putting the cash in.
The value generated you want as capital gains (no tax until you dispose). Done right will be 10% not 20% at standard cgt rate.
You'll want to setup company to ensure you get entrepreneurs relief (you should if director) or if not make sure your shares are EMI qualifying.
You setup the company before putting the cash in.
The value generated you want as capital gains (no tax until you dispose). Done right will be 10% not 20% at standard cgt rate.
stuthe
said:
said: With these of quantums of cash get an accountant.
You'll want to setup company to ensure you get entrepreneurs relief (you should if director) or if not make sure your shares are EMI qualifying.
You setup the company before putting the cash in.
The value generated you want as capital gains (no tax until you dispose). Done right will be 10% not 20% at standard cgt rate.
THISYou'll want to setup company to ensure you get entrepreneurs relief (you should if director) or if not make sure your shares are EMI qualifying.
You setup the company before putting the cash in.
The value generated you want as capital gains (no tax until you dispose). Done right will be 10% not 20% at standard cgt rate.
You set up a company.
Mr B invests £1m into the said company, and in return gets 50% of the equity.
No tax for you to pay etc etc
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