Selling the LTD and taxes

[vas]

Entrepreneurs Relief reduces the CGT rate payable, provided the conditions are met. The standard CGT rate, after your annual tax-free CGT allowance, is 20% for a higher rate taxpayer. This is reduced to 10% if ER applies.

If you're not a higher rate taxpayer (even after adding the gain from the share sale, less your annual CGT allowance, to your income for the year of sale) then ER isn't relevant as you'll only pay 10% anyway.

I see. Thanks.

[Amanensia]

- Income of share sales will be taxed at CGT rate (10%) minus the personal CGT allowance. Where does the ER come into this? I thought it is just on personal level - you have shares, you sell them you pay CGT.

Entrepreneurs Relief reduces the CGT rate payable, provided the conditions are met. The standard CGT rate, after your annual tax-free CGT allowance, is 20% for a higher rate taxpayer. This is reduced to 10% if ER applies.

If you're not a higher rate taxpayer (even after adding the gain from the share sale, less your annual CGT allowance, to your income for the year of sale) then ER isn't relevant as you'll only pay 10% anyway.

[vas]

The wording of the TAAR conditions suggests not. Four conditions need to be met, of which the fourth is:
Condition D: it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax

Bold emphasis mine.

However if you read this source, specifically the "Spotlight 47" paragraph, the implication is that the revenue believe it does apply on a sale.

To a simple mind like mine it's hard to see how the revenue can force an interpretation that would appear to be explicitly and deliberately not covered in the legislation. No doubt the courts will decide eventually...

Interesting this.

So to recap:

- Income of share sales will be taxed at CGT rate (10%) minus the personal CGT allowance. Where does the ER come into this? I thought it is just on personal level - you have shares, you sell them you pay CGT.

- Phoenixing (TAAR) will apply on the share sale. This is the cautious approach based on SL 47. Or if you are adventurous, and need be, open new LTD in less than 2 years and take HMRC to court if they challenge you.

[Amanensia]

I bit confused here, will TAAR apply when selling the LTD? This in connection if you are CG taxed on the income from the sale.

The wording of the TAAR conditions suggests not. Four conditions need to be met, of which the fourth is:
Condition D: it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax

Bold emphasis mine.

However if you read this source, specifically the "Spotlight 47" paragraph, the implication is that the revenue believe it does apply on a sale.

To a simple mind like mine it's hard to see how the revenue can force an interpretation that would appear to be explicitly and deliberately not covered in the legislation. No doubt the courts will decide eventually...

[vas]

Yes, I think so. The TAAR is there to stop reclassification of income to capital where this is deemed inappropriate. ER just reduces the CGT rate payable (as you know) - I don't think it has any relevance to whether the TAAR would apply.

I bit confused here, will TAAR apply when selling the LTD? This in connection if you are CG taxed on the income from the sale.

[Amanensia]

For some reason I thought TAAR only applied if you took ER alongside the MVL, looks like I was incorrect in that assumption ?

Yes, I think so. The TAAR is there to stop reclassification of income to capital where this is deemed inappropriate. ER just reduces the CGT rate payable (as you know) - I don't think it has any relevance to whether the TAAR would apply.

[Major Hassle]

For some reason I thought TAAR only applied if you took ER alongside the MVL, looks like I was incorrect in that assumption ?

[vas]

For me it seems too good to be true. So caution is needed.

Did some checks, and yes, there are requirements for a LTD in a public tender to have history of X years. So this checks out.

If my accountant also confirm CGT is paid on share sale post CGT allowance, I might consider it. TAAR 2 years rule is not a problem: if I sell I will be permie (most of us will be )

Regarding the 5% markup - it seems to me that they are willing to pay for status. Also the area they apply for public work in brings 6 digit turnovers and not starting with 1-5. Sometimes 7 digits.

[Amanensia]

Why would anyone want to buy it?

See paragraph three of the OP, final line.

[ChimpMaster]

Why would anyone want to buy it?

[Amanensia]

Hi, been reading for a long time. Nice forum.

I received an offer for my LTD.

Some history: LTD is ~10 years old, always been in good standing and constantly trading. I own 51% of shares, spouse 49%.
The offer comes form someone who also has an LTD but young (3 years I think).They offer services by participating in public tenders.
It seems there are some requirements by some clients (government/local etc.) where the tender participant must be older LTD.

What I have been offered is to sell my shares at the value of my LTD being the warchest + 5% markup. I.e. if I have X in my LTD account I will get X*5%.

IR35 ahead and I might need to close the LTD anyway. The question is if I sell the LTD (shares) and this income comes to me (wife) personally how is it taxed?
Is it taxed as CG (with CGT allowance)?
Or is it taxed as regular income = personal tax in appropriate bands.
Other?

On the face of it it would appear that you'd pay CGT on the disposal, with both you and your spouse being able to utilise your annual CGT allowance if not used elsewhere and pay CGT at 10% on the remainder, assuming Entrepreneur's Relief applies.

There's an "anti Phoenixing" TAAR which in some circumstances prevents you retaining the capital treatment if you set up another company within two years of a capital distribution, but the wording appears to only catch distributions made as part of a winding up, not a sale. I don't think this would apply but I'd take advice on that point before making a decision.

Sounds like a rather sweet deal. I might be interested in knowing who's making such an offer!

[vas]

Hi, been reading for a long time. Nice forum.

I received an offer for my LTD.

Some history: LTD is ~10 years old, always been in good standing and constantly trading. I own 51% of shares, spouse 49%.
The offer comes form someone who also has an LTD but young (3 years I think).They offer services by participating in public tenders.
It seems there are some requirements by some clients (government/local etc.) where the tender participant must be older LTD.

What I have been offered is to sell my shares at the value of my LTD being the warchest + 5% markup. I.e. if I have X in my LTD account I will get X*5%.

IR35 ahead and I might need to close the LTD anyway. The question is if I sell the LTD (shares) and this income comes to me (wife) personally how is it taxed?
Is it taxed as CG (with CGT allowance)?
Or is it taxed as regular income = personal tax in appropriate bands.
Other?