To Sell or Not to Sell

A client sent her friend in for me to advise today.

He (the friend)  wanted to know how much tax he would have to pay if he sells his share of the business to the other shareholders.

The answer is very easy.  It is the profit less £10,600 all multiplied by 10%, for those of you who like formulas.

               Capital Gains Tax to pay = (Profit - £10,600) x 10%

Two interesting things though.

  1. Profit is proceeds less cost”, so we need to establish the cost of the shares. 
    The client obtained the shares some years ago when he reversed his sole tradership into
    the company. This was a Capital Gains Tax event, but the unqualified person who did his
    tax at the time failed to notice this.  So this guy not only put in an incorrect return which
    could easily attract penalties, but more relevantly he missed around £10,000 of annual
    exemption at the time and is thus paying tax now on at least £10,000 which should
    have been established as cost.
  2. I rang him back after the meeting with a simple idea for saving a further £3,000 of the
    Capital Gains Tax, but that is a trade secret!!