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Forum - Transfer of shares
Transfer of shares
Mon, 06/12/2010 - 15:43 — johnnfox
Can anybody tell me what are the tax liabilities for transfering shares to a new director, from the current 2 directors so the holding is equal for all? The last fiscal year was lean with a small operating loss. This year is more promising with profits growing.
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From a straightforward commercial point of view, Andrew of Beatons Group has already touched on the alternative route of the company issuing new shares to the incoming director instead of the current directors transferring their shares. Presumably the new director is being asked to pay something for his shares. Is this money going to go to the current directors to keep, or to the company for more working capital?
And for a whole lot of wider questions all three could be asking themselves, the following should help (it's also hidden somewhere at the newsletter end of my website):
http://www.onhandcounsel.co.uk/blog/?p=125
The greatest risk is the employment related securities tax charge. This would charge the market value of the shares as income under PAYE and also charge NICs. There are very few "get-outs" now. The main one is for transfers between family members. So it would likely be a reportable Form 42 event.
However if you start with the valuation. Discounted for minority interest. You might get a relatively low value.
You might consider deferred consideration in statisfaction for the shares, effecting a market value payment, but deferring the physical payment and potentially the tax charge.
Capital gains tends to be a lesser issue, you can either structure it that new shares are issued, or alternatively if gains are to arise, the CGT annual exemption is often greater than the value concerned, and effective rate of tax on balance is usually only 10%.
As usual with accounts and tax it is not that straight forward to answer this ….
Two questions to start with, has the incoming director paid for the shares and are they a connected party? (i.e. related to the existing directors or spouse etc)
If they are not connected, then there would be a capital gains liability on the disposal by the 2 directors of their shareholdings based on the price paid.
If they are connected, there will be a capital gains liability on the disposal by the 2 directors of their shareholdings based on market value, whatever that is.
Someone (your accountant) will need to make an assessment of that and calculate the gain accordingly.
Hope this helps a little bit.
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