We are acting for a company which provides car repairs, servicing and MOT services.
The transaction involves a buyback of shares from shareholder A, both in her personal capacity and also as the executor of shareholder’s B estate. The purpose of the transaction is to benefit the company’s trade by removing the unwilling shareholder and thereby improving its financial efficiency and operational capabilities.
Considering HMRC requirements and deciding on the buy-back approach
Initially, the company preferred to transfer the deceased shareholder’s shares to shareholder A, after which the necessary documents would be drafted to facilitate the company’s buyback of all the shares from shareholder A in her personal capacity.
Nevertheless, in this matter it was necessary to treat the transaction as two separate buybacks for the following reasons:
- Avoiding disputes over legal and beneficial ownership:
Simply transferring shareholder B’s shares from shareholder A as executor to herself as a potential beneficiary without further consideration could lead to disputes over the estate, as it might not align with shareholder B’s wishes.
Therefore, treating the transactions separately allows for a clear distinction between shareholder A’s personal shares and those she managed as executor.
- Satisfying HMRC requirements for exemption from the transaction being treated as distribution for tax purposes:
It has been agreed to obtain clearances from HMRC prior to completing these transactions to ensure that the tax treatment for each transaction could be confirmed in advance, avoiding unexpected tax liabilities or disputes with HMRC in the future. However, transferring the shares from shareholder B to shareholder A would prevent shareholder A from claiming an exemption from distribution as this would result in her being the owner of shareholder’s B shares for less than 3 years.
It is one of the requirements that, in order to claim such exemption, a shareholder must have owned the shares for five years or more ending with the date of the purchase or 3 years if the selling shareholder acquired the shares under the will or intestacy of a former shareholder. Treating this transaction as two separate share buybacks, therefore, enables shareholder A to meet this condition.
Overall, the decision to treat the buyback as two separate transactions was driven by the need to manage legal, tax, and estate considerations effectively, ensuring a smooth and compliant process for all parties involved.
Expert Legal Support for Complex Share Transactions
At Oliver & Co, we specialise in advising businesses on technically complex matters such as share buybacks, estate-related transfers, and HMRC compliance. Whether you’re navigating shareholder disputes, planning for succession, or restructuring ownership for operational efficiency, our experienced corporate team led by Tim Polding can provide tailored, strategic advice.
If your business is facing a similar situation, get in touch today to discuss how we can support a smooth, compliant, and tax-efficient solution.
