selling co shares

[karenlr54]

my husband and i have a ltd co both 50% shareholder directors
we are divorcing
the divorce proceedings started in aug 15
I hope to be divorced either at the end of this yr or early part of next
I would like to sell my shares back to the co for £30,000 (it has more than enough money in the business account to do this)
I will be working in the co till the end of our financial yr (mar 17) on my current wage and dividend
(there is currently a credit bal of £78,000 in the directors loan account so we don't over draw)
I,ve put all this down because I know there are rules and possible tax implications when you sell back shares so I want to do it properly with maximum benefit not just for me but for the co and my soon to be ex husband
so would it be best to sell the shares in the new financial yr 17 -18?
we would be divorced by then
will there be any tax payment due by me (I wont be earning in 17-18 or very little if i do as I am going back to school!)
will there be any tax payment occurred by the business?
can the business claim it as an expense?
thank You

 

[Scalloway]

If the company purchases the shares for more than their original issue price, the excess is normally treated as a distribution of profits (like a dividend). This income is then subject to income tax. You will have a personal allowance of £11,500 for 2017/18 so you will only pay tax if your total income exceeds this.

The company will have to pay stamp duty on the transfer. The purchase of shares does not have any other effect on tax or profits.

More info here

https://www.lawdonut.co.uk/business...selling-your-shares-back-to-your-company-faqs

 

[karenlr54]

Hi thanks for your reply so to confirm if i,m not working or income is lower than £11500.00 in 17/18 they would be tax free?
how much is the stamp duty rate?
I,m sure i read somewhere that the buying back of shares could be used by the co as a expense but i must have imagined it
will it make any difference when i sell them back to the co if i am divorced or not or in this yr or next?
I have read also that if things are sold in the yr you separate it has a difference on CGT than if you sell it after a yr has passed since separation is this correct
thanks

 

[Scalloway]

If you have no other taxable income in 2016/17 then it should be tax free for the first £11,500

From the link I posted above

Stamp duty at 0.5% (rounded up to the nearest £5) is payable on the purchase price, and the form SH03 that has to be submitted to Companies House within 28 days of the purchase must be sent to the Stamp Office of HM Revenue & Customs (HMRC) to be stamped before it is sent to Companies House.

There is an exception if the price paid is £1,000 or less and the form is certified as such, in which case no stamp duty is payable, and the form does not have to be submitted to HMRC before being sent to Companies House.

Beyond that, the purchase of shares does not usually have a direct effect on the company's profits or tax position.

The buyback of shares is financed by using the company's accumulated profits, meaning there is less profit available for distribution.

There is no tax difference when you sell them. I have no idea if there are any legal consequences.

I have no idea about the CGT position

 

[UK Contractor Accountant]

You would elect for CGT treatment - not income distribution.

Need to take professional advice from the company Accountants before going ahead with the SBB (share buy back).

 

[Energise Accounting]

You will also need clearance from HMRC before a company can buy back its own shares.Their are quite a few tick box exercises to make sure this is done in the correct manner.

Get your accountant to deal with the whole process for you

 

[Gareth ACA Accountant]

Companies can buy back shares from their shareholders and treat it as a capital distribution if its fore "the benefit of the trade". This scenario sounds like it would fit some of the benefit of the trade tests that have been established through case law and HMRC tribunal outcomes.
The benefit of a capital distribution is that it's subject to capital gains tax and therefore suffers lower tax rates. If you are eligible for Entrepreneurs Relief you could secure this at a 10% tax charge.
You do, however need a professional accountant to advise you more specifically on this

 

[MikeJ]

Would Entrepreneurs' Relief apply in this case? I couldn't see any reference to the company buying back shares on HMRC's website.

Edit - Just notice Gareth's mentioned that.

 

[karenlr54]

Thank you gentlemen for all your replies much appreciated