Taxation magazine queries ― capital extraction of profit

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

Overview

The following guidance note provides details of queries raised on the extract of profit on the winding-up of a company in the last few years in the Readers’ Forum section in Taxation magazine with a link to the full replies. It should be noted that the response to the queries is at a point in time and all relevant legislation should be confirmed as being currently applicable.

Tax implication of undervalue of shares

Details of the query as copied from Taxation magazine

We have been asked to assist a third party with a company purchase of own shares in a two man company. Everything falls within the regulations surrounding these transactions, but in our opinion, the price being paid for the shares is significantly lower than market value. While the POS rules don't require that market value is paid, we believe that there could be adverse tax implications from the undervalue. TCGA 1992, s 17 could be applied to replace proceeds with market value for CGT purposes and there is a potential chargeable

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