FC writes: My son is thinking of coming to work for my property investment company (a private limited company) after university. I would like him to own some shares in the company as a long-term incentive. My company balance sheet shows a net asset value of £10 per share. If I sell some shares to him below the net asset value, say £8 per share, are there any legal or tax implications? If he subscribes for new shares, is my company allowed to issue shares to him at a substantial discount?
You are considering the transfer of assets between connected parties at less than the market value, writes Chris Lane, a partner at Kingston Smith. This is legal, but with such a sale the Inland Revenue would consider you liable for capital-gains tax (CGT) on the full market value. To calculate the liability the Revenue would substitute the current market value for the actual sale price. But remember it is not just net asset value that determines the valuation of your company; factors such as goodwill are also considered. Another way to transfer shares to your son is by a gift, which again is a disposal for CGT purposes, but here it would be possible to hold over (defer) the gain on the shares into the acquisition cost for your son.