Share sale - Tax issues

Question 1

Who may use SSE and what kind of tax does it apply to?

Answer 1

• Corporate seller
• CGT
• Share sale

Question 2

What are the requirements for SSE to apply?

Answer 2

• Selling company owned 10% of ordinary shares for at least 12 months in preceding 2 years.
• Selling company must be a trading company through the 12 month period of ownership in preceding 2 years.

Question 3

How is a trading company defined?

Answer 3

A company whose activities are at least 80% trading

Question 4

What are the requirements for tax deferral?

Answer 4

• Buyer will hold at least 25% of seller’s ordinary shares

- There must be a bona fide reason for the tax deferral

Question 5

What is rollover relief? What is its effect?

Answer 5

• Where tax on SHARES is rolled over till the shares are sold.
• Seller pays CGT at point of sale of shares in buyer.
• CGT = Sale value at point of sale - original price paid for target shares sold

Question 6

What is Holdover relief?

Answer 6

• Where tax on LOAN NOTES is held over till loan notes redeemed.
• CGT= Value of redeemed loan notes - original price paid for target shares sold

Question 7

Criteria for entrepreneurs relief:

Answer 7

• Individual disposes of shares in a company in which he holds; 5% of ordinary share cap, and 5% of voting rights
• Individual must be an officer or an employe of the target company.
• All conditions must be satisfied for 1 year prior to disposal.

Question 8

What is effect of ER?

Answer 8

• Reduces CGT to 10%

Question 9

Is ER automatic?

Answer 9

NO, individual must make claim for it.

Question 10

Can both ER and tax deferral apply?

Answer 10

In theory yes, however the new shares the seller receives would have to meet the criteria for ER in their own right upon disposal. Tax deferral will apply unless ER is applied for.

Question 11

How is tax paid on deferred uncertain consideration?

Answer 11

• Tax paid on sum paid at completion

- Tax paid on HMRC estimate of right to receive further consideration - chose in action.

Question 12

What is the case which states deferred uncertain consideration is a chose in action?

Answer 12

• Marren v Ingles

Question 13

Is SSE or ER available on a chose in action?

Answer 13

NO - These tax exemptions are specific to shares. Therefore if deferred uncertain consideration then will not have benefit of these exemptions.

Question 14

What did the case of Zim state?

Answer 14

• Right to sue is an asset.
• Asset valued at 0 at completion.
• Therefore any value achieved on asset is liable for CGT.