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Retirement plan

14 April 2015
Issue: 4496 / Categories: Forum & Feedback , Companies , Employees , Income Tax

Implications of a gift of shares and share buy-back

Our client trading company has issued share capital of £50 000 held equally by a husband and wife.

There are distributable reserves of £9m with £8m in the bank. Our clients’ son and daughter are employed by the company although they have not yet acquired all the management skills to run it without some input from the parents who are in their early 60s.

The parents would like to extract some cash in capital form at the 10% capital gains tax rate taking advantage of entrepreneurs’ relief. It is proposed that the parents will gift 10 000 shares to their two children with holdover elections leaving them with 40 000 shares.

The company would then buy back 35 750 shares from the parents with a clearance application submitted to HMRC for confirmation that the distribution will be an exempt distribution and that capital treatment will apply. The...

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