Capital Gains Tax (CGT)

CGT is due on the sale of shares in a company when you sell them for more than you paid for them.

The normal rate of CGT is 18% or 28%.

Entrepreneurs Relief (ER)

ER reduces the rate of capital gains tax to just 10% as long as the following conditions are met:

Spouse Issues

If you run an owner-managed business then you may think that everything is fine and you will only pay tax at 10% when you come to sell your business.

However, a large majority of business owners have transferred shares to their spouses so that they can take money out of the company in the most tax efficient way.

In the majority of these cases, the spouse is not an employee or officer of the company and will therefore pay tax on the sale of their shares at the normal rates of CGT.

What’s The Solution

To ensure that the sale of all of your shares attracts Entrepreneurs Relief, you can do either of the following:

Make your spouse an employee or officer. This doesn’t mean they have to be a director, a company secretary is an officer of the company too. However, make sure that this is done at least 12 months prior to any sale or there will not be any ER.

Alternatively, as a last minute solution, your spouse could transfer the shares back to you just before the sale. As long as you owned at least 5% of the share capital for the 12 months prior to the sale then ER will be available on all shares sold, it doesn’t matter when they were acquired.

If you use the second option then make sure that your spouse doesn’t transfer all of their shares. Instead, they should leave themselves with enough to take advantage of their annual CGT exemption (2014/15 = £11,000), thereby paying no tax on the gain.

Did You Know

Striped Leopard Accountancy specialise in ensuring our clients only pay the legal minimum in tax and not a penny more. Check out our services to see how we could help you.