Maximising CGT Entrepreneurs' Relief
With CGT at only 10% if entrepreneurs’ relief is available, and otherwise the tax being at 28%, we are always on the lookout for ways of getting the tax take on a sale at the 10% rate. Any ideas must be watertight and relate to individual circumstances, as otherwise it may be impossible to resist any future HMRC attack on the arrangements.
One such idea is where a shareholder in a trading company is an outside investor who has not been an officer or employee of the company. In that case the gain on disposal of any of the shares does not qualify for entrepreneurs’ relief and CGT on the gain is 28% instead of 10%. A possible way round this can be arranged where, for example, each parent owns (say) 40% of the ordinary share capital and meets all of the requirements for CGT entrepreneurs’ relief. Their son is not an officer or employee of the company and owns the remaining 20%, so faces a CGT bill on sale of the company of 28% compared with his parents 10% tax bill.
The son could make an outright gift of his 20% holding to either parent before the planned sale. The parent will qualify for entrepreneurs’ relief on that 20% holding as well as on his/her original shares as he/she has already met all of the requirements. The fact that he/she will not have owned the 20% holding for the normal minimum period of the 12 months to disposal is irrelevant.
The result is that the gain on the 20% holding is taxed at 10%, not 28%. Please ask us for advice if you find yourself in a similar situation.