by David Anderson, French tax and property solicitor at Sykes Anderson LLP solicitors Please note that taxation and property are complex subjects and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it. |
Q. I own the entire issued shares in my company which I set up over ten years ago. I am now thinking of selling the company and retiring, but am told that I will have to pay capital gains tax on the proceeds. Is this correct ?
A. If the value of the shares has increased since you acquired them, then the short answer is yes. As you set up the company, the likelihood is that at the time you acquired the shares they had a nominal value. As their value upon disposal is presumably a lot higher, you have made a gain, which is subject to CGT.
Q. What is the rate ?
A. CGT usually follows your marginal rate, i.e. 20% for basic rate taxpayers and 40% for higher rate payers. Any significant gain is almost certain to take you into the 40% bracket - a sizeable chunk.
Q. Are any exemptions or reliefs available ?
A. Yes. Each taxpayer's first £8,500 of capital gain is tax free. You could consider transferring some of the shares to your spouse so as to also use her annual exemption. However, this must be done judiciously so that she is not seen as merely your nominee and there may be other considerations.
Q. But my gain is likely to be a lot higher than £8,500 !
A. Well, there's also taper relief. For business assets this is very generous - you are usually only taxed on 25% of the gain, making the effective rate for higher taxpayers only 10%. This is one of the lowest rates in Europe. But you have to be careful as what is classified as business property is not always intuitive. Although it seems intuitive that the shares in your company be classed as business assets this in fact depends on the exact status of the company and your shareholdings in it and must never be assumed.
Q. Let's assume that these shares are business assets. I'm still facing a five figure bill. Can you reduce it further ?
A. Yes, but it requires a long-term commitment from you. If you're happy to move to France for five (tax) years, you can sell the shares while you're French tax resident. Under the current UK-France double tax treaty, provided the seller owns more than 25% of the company's shares, any gains are taxed in the UK rather than France (even if the seller is French resident). But the UK does not levy CGT on non-residents. Therefore you would side-step both UK and French CGT entirely. I must add the usual health warning that this is subject to rules and the specific circumstances of your case; you would have to pay me for specific advice on your case and how to implement it !
Q. Five years ! I'm not sure where I'll be in five days' time, let alone five years!
A. Yes, the Chancellor's been quite clever in introducing the five year rule - you used to have to be outside the UK for only one tax year. That said, you are allowed to visit the UK; it's just that you have to make France your main home - basically, where you live, as we all understand the term "live". You could move on from France (say, to Spain) within the five-year period but you must not become UK tax resident again.
Q. What happens if I do return to the UK within five years ?
A. If there is any prospect of that, don't go down this route.
Q. France doesn't appeal to me - Spain does. Are the rules the same ?
A. We can advise on Spain and other countries which have similar rules in conjunction with local experts there.
Q. So you're effectively telling me that France is a tax haven.
A. Yes - unexpectedly. Most people think that you have to go to Jersey for a "tax holiday". In fact, in many ways if you went to Jersey (even assuming they'd let you live there) you might actually be worse off.
Q. Can I do this straight away?
A You have to be out of the UK for a full tax year in which you make the sale. In other words if you sell your shares in May 2006 you need to have left the UK by 5 th April 2006 . If you actually wanted to sell, say, in November 2005 then this could in practice be achieved assuming you left the UK before 5 th April 2006 and the deal completed after this date. We can take you through this in more detail.
Q. What are the other tax angles?
A. French tax will become relevant as you become French tax resident. This is not as daunting as it sounds and with some simple planning you may find yourself taxwise better off than you would have been in the UK.
Q. I have existing solicitors who handle my company's work. Can you work alongside them giving them the French tax input?
A. Yes. However, experience has taught us it is better to have everything done under one roof; together with our company commercial team we can provide a full service.
Sykes Anderson LLP advises on the impact of capital gains tax on share sales and how to minimise it.
Please contact David Anderson by email or on 020 7398 4700.
Bury House, 31 Bury Street London EC3A 5JJ Tel 020 7398 4700 Fax 020 7283 6585 DX 729 London/City E-mail: |
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