Buying share equity in a company, can you use Ltd

[hundleydavid]

Hi

About to buy into a company that my Partner works for and will become director off and also form part of the board.

I have a small limited company, has any one purchased share equity using there ltd and are there any pitfalls to think about?

Regards

David

[2 sMoKiN bArReLs]

Not sure how it may affect your taper relief when you come to dispose of the shares.

[2 sMoKiN bArReLs]

I assume it is a Ltd company that the other Ltd company may buy into.

[hundleydavid]

2 smokin... yes its a ltd i am buying into...

[2 sMoKiN bArReLs]

I'm sure there are zillions of pros & cons. Taper relief is a real good wheeze & you really don't want to miss out on it. (Not saying you would, just saying get it checked)

[hundleydavid]

Thanks for your help. Going to speak to accountants, but i wanted 'realtime' experience that people have been through.

Thanks

[2 sMoKiN bArReLs]

Good luck. I guess they'll spin the question around, and ask why you'd want to do it. Do the mem & arts allow it? (In your existing co)

I'd be interested to hear the answer!!

[hundleydavid]

Will keep you posted and PM you.

Thanks

[Eric Mc]

There is no reasons why the shares could not be bought in the name of your company rather than you personally.

The taper relief situation would not be that different as taper relief is baed on the time period over which the asset is owned and the nature of the asset itself (i.e. business or non-business).

What would be different is the rate of tax applicable to any gain - a company pays CGT at its Corporation Tax rate. An individual pays CGT at their maximum Income Tax rate.

Also, indiuviduals can will be able to offest their CGT Allowance (currently £8,800 per annum) against any Capital Gains on disposal. Companies do not get this allowance.

[srebbe64]

hundleydavid said:

Hi

About to buy into a company that my Partner works for and will become director off and also form part of the board.

I have a small limited company, has any one purchased share equity using there ltd and are there any pitfalls to think about?

Regards

David

Not entirely sure I fully understand the question, but if you're using a Ltd company to purchase shares in another company then there are a couple of things to consider:

1) If the assets of your current company include significant investments then this could effect the taper relief if you were to sell it. The Revenue use something called the 20% rule - which is rather ambiguous in reality, but in essence Taper Relief is designed for "trading" companies and not "investment" companies.

2) If your current (Ltd) company has significant assets, be that shares, cash, property, etc, then these assets are not ringfenced. They're not yours they're the company's. Should the company get into trouble and you have creditors coming after you then these assets are up for grabs. For this reason, I tend to ringfence my assets by owning them personally rather than through a company - even if it means paying Tax to extrapolate them.

Just my penny's worth!

[Eric Mc]

And if your compsany becomes an Investment Company (rather than a trading company) because of its purchase of shares in the other company, it loses the special low rates of Corporation Tax applicable to "small trading companies". As well as that disdavantage, under Company Law it also has to disclose a lot more information in its accounts

[hundleydavid]

Everyone, thanks for your help and advice. The power of the Piston head forum....