Readers’ forum: Would transaction be taxed as income?

Our client has the following structure in place. The trading subsidiary (Tradeco) is owned 100% by a holding company (Holdco) which in turn is owned by 11 shareholders. These are four individuals and seven companies as follows – A B C D A Ltd (owned 100% by A) B Ltd (owned 100% by B) C Ltd (owned 100% by C) D Ltd (owned 100% by D) E Ltd F Ltd and G Ltd. These are all close companies and no single shareholder (or combined with their companies) owns more than 25% of Holdco.

There is a shareholders’ agreement (SA) in place which values the company at £5m (regardless of reserves in either Tradeco or Holdco). The reserves currently in the company (Holdco + Tradeco) are c£2m.

Person A (PA) is looking to retire immediately and wants to sell his...