Entrepreneurs relief for one retiring director

[MB2]

I would agree, we are doing this at the moment for a retired director/shareholder and we got revenue clearance for ER and also that the company can buy the shares back when it can afford it.

[ContrataxLtd]

A company share buyback does look like an appealing option but the difficulty would be in convincing HMRC that it was for the benefit of trade of the remaining company rather than being undertaken for your own personal tax reasons (the "trade benefit" test)

Also if your other company is in a similar activity or field you'd fall foul of ER.

Company sharebuyback does allow you to get pre-clearance from HMRC however which means at least you'll know it will be treated as capital rather than income (unlike a challenge to ER which might happen years after the event).

Convincing HMRC that the 'trade benefit' test is passed for a retiring shareholder should be relatively straight forward in my opinion, I've certainly never had any issues with this myself. Added to this that you can get clearance from HMRC means you can be certain that you have a transaction that meets the tests for a capital distribution.

If you are in receipt of a capital distribution then ER shouldn't be an issue (assuming standard conditions met), the 2 year rule wouldn't come in to play here as that is anti avoidance around a capital distribution and with the clearance above you can be pretty much certain that nothing will come back to bite you down the line if structure properly.

Martin
Contratax Ltd

[ian2012]

A company share buyback does look like an appealing option but the difficulty would be in convincing HMRC that it was for the benefit of trade of the remaining company rather than being undertaken for your own personal tax reasons (the "trade benefit" test)

Also if your other company is in a similar activity or field you'd fall foul of ER.

Company sharebuyback does allow you to get pre-clearance from HMRC however which means at least you'll know it will be treated as capital rather than income (unlike a challenge to ER which might happen years after the event).

[ContrataxLtd]

Thanks for your help. I appreciate it is complicated. The other shareholder do not have 50K each to spare. I want to take out the 100K profit from the company. So is HMRC saying that if the other shareholder buy out my share using their personal money only then i can claim associated disposal ER.

Referring to the example from HMRC link around associated disposal "For example, you personally own a shop from which you trade in partnership with your brother. You have a 3/5 interest in the assets of the partnership and your brother 2/5. You reduce your involvement in the business so the interest is altered to 1/5 for you and 4/5 for your brother."

Hi Lyber

Go speak to your accountant about a company purchase of own shares:

https://www.gov.uk/government/upload...res.pdfhttp://

Yes there are hoops to jump through and plenty of paperwork so expect to be charged for this but on the assumption that the distribution would be treated as capital then you should then qualify for ER on this, again, assuming you meet the criteria for ER.

In essence it means you can extract cash from the company as capital without the remaining shareholders having to stump up the cash personally and thus increasing their base cost of their shares against which they may never get relief.

HTH

Martin
Contratax Ltd

[Lyber]

Thanks for your help. I appreciate it is complicated. The other shareholder do not have 50K each to spare. I want to take out the 100K profit from the company. So is HMRC saying that if the other shareholder buy out my share using their personal money only then i can claim associated disposal ER.

Referring to the example from HMRC link around associated disposal "For example, you personally own a shop from which you trade in partnership with your brother. You have a 3/5 interest in the assets of the partnership and your brother 2/5. You reduce your involvement in the business so the interest is altered to 1/5 for you and 4/5 for your brother."

[Maslins]

!!

Fair point...a lot of the rest of the OP he talks about him being director, threw me.

[pr1]

Careful as you're confusing "directors" and "shareholders". Assume that was just poor terminology, but for clarity if you're "just" a director and you're leaving, you're not entitled to any share of profits, nor is there anything for you to be bought out of. Potentially you might be entitled to some kind of redundancy/whatever.

Assuming you are a 33% shareholder, the other shareholders can buy you out and the sales proceeds should qualify for entrepreneurs relief for you.

!!

Hi- We are 3 directors in a limited company with a large retained profit reserve (~300K). Each of us have a 33% shareholding. We have been a trading limited company for 2 years

[northernladuk]

Who has the other 1%?

What are your plans once you've left this business? Carry on with business 2?

[craigy1874]

Careful as you're confusing "directors" and "shareholders". Assume that was just poor terminology, but for clarity if you're "just" a director and you're leaving, you're not entitled to any share of profits, nor is there anything for you to be bought out of. Potentially you might be entitled to some kind of redundancy/whatever.

Assuming you are a 33% shareholder, the other shareholders can buy you out and the sales proceeds should qualify for entrepreneurs relief for you.

Do be a bit careful though, as to who is buying what. Eg are the other two shareholders going to give you £50k (or perhaps slightly less might make sense) each to buy your shares? Or are you wanting to take "your" £100k from the company? Both are potentially possible, but they're very different things (the latter being the everso amusingly abbreviation POOS, purchase of own shares). The latter is also a bit more complex, so I wouldn't recommend DIYing. If the other shareholders have the £50k each, that option will tend to be simpler...but I appreciate possibly they won't.

Perfect reply and I agree 100%. OP listen only to this reply.

[Maslins]

Careful as you're confusing "directors" and "shareholders". Assume that was just poor terminology, but for clarity if you're "just" a director and you're leaving, you're not entitled to any share of profits, nor is there anything for you to be bought out of. Potentially you might be entitled to some kind of redundancy/whatever.

Assuming you are a 33% shareholder, the other shareholders can buy you out and the sales proceeds should qualify for entrepreneurs relief for you.

Do be a bit careful though, as to who is buying what. Eg are the other two shareholders going to give you £50k (or perhaps slightly less might make sense) each to buy your shares? Or are you wanting to take "your" £100k from the company? Both are potentially possible, but they're very different things (the latter being the everso amusingly abbreviation POOS, purchase of own shares). The latter is also a bit more complex, so I wouldn't recommend DIYing. If the other shareholders have the £50k each, that option will tend to be simpler...but I appreciate possibly they won't.

[madame SasGuru]

1. Have you asked your accountant?
2. Is there anything you're not telling us?
3. Have you read the link?



So, if the business is continuing to trade and a distinct part of the business is not being disposed of, then no you can't claim ER.

Given that you haven't read the entirety of the link the OP posted (I'm giving you the benefit of the doubt here) his example is covered in Example 2 of his document where he is selling his shares as covered in the section titled Disposal of shares in or securities of your personal company .

But given the amount of money involved invest £1000 and get an accountant to check things for you.

[northernladuk]

I wanted to get adviCe on whether i can do the above and if there are any hiccups.

FTFY

[WTFH]

...I will be selling my shares to the other 2 directors.

As per the link below it looks like I can retire and claim ER with respect to the assets.
https://www.gov.uk/government/public...rs-relief-2015

1. Have you asked your accountant?
2. Is there anything you're not telling us?
3. Have you read the link?

Disposal of the whole or part of your business
You must have owned the business directly or it must have been owned by a partnership in which you were a member. Entrepreneurs’ Relief is not available on the disposal of assets of a continuing business unless they’re comprised in a disposal of a distinct part of the business.

So, if the business is continuing to trade and a distinct part of the business is not being disposed of, then no you can't claim ER.

[Lyber]

Hi- We are 3 directors in a limited company with a large retained profit reserve (~300K). Each of us have a 33% shareholding. We have been a trading limited company for 2 years

I am one of the directors who is retiring from the business and would like to claim entrepreneurs relief on his share (~100K) of the profits. I will be selling my shares to the other 2 directors.

As per the link below it looks like I can retire and claim ER with respect to the assets.
https://www.gov.uk/government/public...rs-relief-2015

I am also a sole director in another company which is a different business altogether which will continue to run as a ltd company run by me.

I wanted to get advise on whether i can do the above and if there are any hiccups.