Getting 10% tax on the sale of all my shares in my company
QUESTION: I am a shareholder and a director of a company which in the process of being sold in the next few months. I have owned the majority of my 25 per cent shareholding for many years and know they qualify for entrepreneurs' relief (ER). However, I bought another tranche of ordinary shares within the last few months from a minority shareholder. Will I get ER on these shares too?
ANSWER: Entrepreneurs' Relief (ER) ensures a capital gains tax rate of 10 per cent on the sale of shares in trading companies compared to the standard rate of CGT of 20 per cent for higher rate taxpayers.
ER does require a number of conditions to be satisfied in order to claim the relief and a number of recent tax cases have shown the importance of getting the basics right in order to comply with the conditions.
ER applies to the first £10 million of lifetime gains (measured from April 6 2008) and the full entitlement to the relief will result in a tax saving of £1 million. Therefore, there is a huge financial incentive to qualify for ER.
The shares must be ordinary shares in a trading company and represent at least 5 per cent of the ordinary shares and entitled to at least 5 per cent of the voting rights in relation to the company. In addition, the shareholder must be an employee or a director of the company (or a member of a corporate group including the employer company) with the directorship or employment and the shareholding having been held for a 12 month period ending with the sale of the shares.
The conditions for ER are considered by reference to the company whose shares are being sold and not to the actual shares themselves. You have determined that ER is available because the conditions listed above were met before you bought the later batch of shares.
This later batch of shares do not have to be owned for twelve months. What matters in this instance is that the company was your “personal company” (ie meets the above test) throughout the twelve months prior to the sale.
The fact that the older and newer shares are pooled together in the sale does not prevent ER from being available against the whole of the capital gain.
The capital gains tax is paid within 10 and 22 months after the disposal takes place. If you sell your shares before the end of the current tax year (April 5 2018) then the tax is due and payable by January 31 2019. However, if you do not sell your shares until the early part of the next tax year then the tax is not due to be paid until January 31 2020 as the disposal falls into the 2018/19 tax year.
::Malachy McLernon (email@example.com) is a director of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.