Tax efficient share transfer
Discussion
Person A owns 100% of a company.
Person B helped make it a success over a couple of decades in return for a minority proportion of the company.
This was agreed under an approved option scheme.
The option scheme accidentally lapsed. Both people at fault for not realising that this could happen.
Person A wishes to honour the commitment, but there’s now a whole raft of complexity and potential big tax bill.
Person B still on the payroll for some consultancy work but happy to terminate that if necessary to avoid disguised remuneration issues.
Proposal;
Person A sets up a new holdco and transfers all the shares to that.
Person B also sets up a company.
Person A’s holdco sells the shares to Person B’s company for a fair value in return for a loan note.
Loan note is potentially never paid.
HMRC would be asked for clearance.
Any obvious issues?
Person B helped make it a success over a couple of decades in return for a minority proportion of the company.
This was agreed under an approved option scheme.
The option scheme accidentally lapsed. Both people at fault for not realising that this could happen.
Person A wishes to honour the commitment, but there’s now a whole raft of complexity and potential big tax bill.
Person B still on the payroll for some consultancy work but happy to terminate that if necessary to avoid disguised remuneration issues.
Proposal;
Person A sets up a new holdco and transfers all the shares to that.
Person B also sets up a company.
Person A’s holdco sells the shares to Person B’s company for a fair value in return for a loan note.
Loan note is potentially never paid.
HMRC would be asked for clearance.
Any obvious issues?
Edited by otolith on Saturday 18th February 01:46
What's the rationale of the Holdco over direct sale?
Of course if the intention was never to pay, this would be tax evasion. But it's also an honest mistake that has caused the issue. Risk = Cost of shares grossed up as salary and ERS NI added, plus interest, plus fines, plus potential prosecution.
Would the change in employee status make any difference to HMRC when the facts are reviewed?
The loan would always be sitting as potential remuneration. If HMRC query a few years down the line, what is the answer as to why it hasn't been paid? Typically you would expect any purchase to factor in repaying over 3-5 years.
Of course if the intention was never to pay, this would be tax evasion. But it's also an honest mistake that has caused the issue. Risk = Cost of shares grossed up as salary and ERS NI added, plus interest, plus fines, plus potential prosecution.
Would the change in employee status make any difference to HMRC when the facts are reviewed?
The loan would always be sitting as potential remuneration. If HMRC query a few years down the line, what is the answer as to why it hasn't been paid? Typically you would expect any purchase to factor in repaying over 3-5 years.
It would obviously all have to be professionally reviewed, and if necessary a scheduled repayment of capital could be included. It’s just a mechanism which a third party suggested in a back-of-fag-packet level of detail, which looks interesting. Third party is a chartered accountant, but not a specialist in this area.
MaxFromage said:
Rufus Stone said:
If you are looking to effectively give the business away, have you considered gift holder-over relief?
Holdover won't work as they're an employee/consultant. Holdover only works for 'family'.I've been looking into it recently and did not find any such exclusion mentioned.
Rufus Stone said:
Can you link any evidence of that?
I've been looking into it recently and did not find any such exclusion mentioned.
Probably because you need to look at it from an Employment Related Securities perspective rather than HS295 where it is silent as you would expect. It has nothing to do with employment.I've been looking into it recently and did not find any such exclusion mentioned.
See below and why I put 'family' instead of family:
https://www.gov.uk/hmrc-internal-manuals/employmen...
For a good qualified accountant, this is straightforward, as you understand what legislation trumps another.
MaxFromage said:
Probably because you need to look at it from an Employment Related Securities perspective rather than HS295 where it is silent as you would expect. It has nothing to do with employment.
See below and why I put 'family' instead of family:
https://www.gov.uk/hmrc-internal-manuals/employmen...
For a good qualified accountant, this is straightforward, as you understand what legislation trumps another.
It appears you are indeed correct.See below and why I put 'family' instead of family:
https://www.gov.uk/hmrc-internal-manuals/employmen...
For a good qualified accountant, this is straightforward, as you understand what legislation trumps another.
https://blogs.mazars.com/letstalktax/hold-over-rel...
Rufus Stone said:
Well yes, it's my job, which I try to be good at 
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