shaw gibbs - accountants and business advisers
accountants & business advisers

Article

Capital Gains Tax – getting the details right!

Article

Capital Gains Tax – getting the details right!

27 Sep 2022

2 minute read

The recent tax case of Kavanagh v HMRC has highlighted the importance of ensuring that the relevant qualifying conditions are met to access valuable tax reliefs.

Capital Gains Tax – getting the details right! - news article image

The recent tax case of Kavanagh v HMRC has highlighted the importance of ensuring that the relevant qualifying conditions are met to access valuable tax reliefs. 

Business Asset Disposal Relief “BAD Relief” (formerly Entrepreneurs’ Relief) provides that on the disposal of certain assets, a 10% Capital Gains Tax rate can be obtained (as opposed to a general 20% CGT rate), subject to a lifetime limit per individual of up to £1m – under current rates, potentially therefore providing a maximum £100,000 tax saving. 

Broadly speaking, for the sale of shares, BAD Relief can be claimed where, throughout the period of 24 months immediately leading up to the sale, the seller meets the following conditions:


  • Holds at least 5% of the ordinary share capital of the company giving at least 5% of the voting rights in the company;
  • Be entitled to at least 5% of either; 
  • The profits that are available for distribution and assets on winding up the company;
  • The disposal proceeds of the company if it is sold. 
  • Be an officer or employee of the company. 

In addition to the individual requirements, the company’s main activities must be trading, or the company must be the holding company of a trading group. 

These conditions are strictly enforced by H M Revenue & Customs and a small error can lead to a loss of relief. 

In the aforementioned case, Mr Kavanagh held 1,842 shares in Badger Group (Holdings) Limited, a trading group running an estate agency business. The total share capital in the company was 36,862 shares, giving Mr Kavanagh 4.997% of the total issued shares. 

On sale of the company’s shares, Mr Kavanagh received gross proceeds of £985,839.62 which was exactly 5% of the total proceeds paid and subsequently claimed what was then Entrepreneurs’ Relief on his tax return. 

Following H M Revenue & Customs enquiry, the relief was withdrawn as Mr Kavanagh held marginally under the required 5% holding – thus doubling the tax due by Mr Kavanagh on the sale. 

This case highlights the importance of detail – although it was widely accepted within the company that Mr Kavanagh owned 5% of the company, based on his actual shareholding he was marginally short of the 5% figure. Should this have been considered, the company could have issued Mr Kavanagh with one additional share, meaning that he would have owned over the requisite holding, and qualified for the 10% tax rate on sale. 

On a potential sale of your company, it is recommended that a review of the tax position is undertaken as early as possible. This enables any issues to be picked up and often rectified before the sales process gets underway.

Need expert advice?

Speak to an expert for advice on
+44-1865 292200 or get in touch online to find out how Shaw Gibbs can help you

Email
info@shawgibbs.com

Need expert advice?

Speak to an expert for advice on
+44-1865 292200 or get in touch online to find out how Shaw Gibbs can help you

Email
info@shawgibbs.com

What our clients say

  • I have been a client of Shaw Gibbs since the 1960's and have always found a professional but friendly response from the partners or staff

    I have been a client of Shaw Gibbs since the 1960's and have always found a professional but friendly response from the partners or staff

    Richard Preston

  • Thank you for being such a great partner in building our business!

    Thank you for being such a great partner in building our business!

    Oege de Moor - CEO, Semmle

  • Experience, expertise and support was not only invaluable from a financing perspective, but also in assisting us to determine the future strategy.

    Experience, expertise and support was not only invaluable from a financing perspective, but also in assisting us to determine the future strategy.

    Charles Parry – John Parry Estates Ltd

  • Shaw Gibbs’ service provides timely expertise at a reasonable cost

    Shaw Gibbs’ service provides timely expertise at a reasonable cost

    OATS Limited

© 2022 Shaw Gibbs Ltd

Your registration