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This is the question: Innocent and Nigel, a married couple, both have shareholdings in Cinnamon Ltd, an unquoted trading company
with a share capital of 100,000 £1 ordinary shares.
Innocent has been the managing director of Cinnamon Ltd since the company’s incorporation on 1 July 2004,
and she currently holds 20,000 shares (with matching voting rights) in the company. These shares were
subscribed for on 1 July 2004 at their par value.
Nigel has never been an employee or a director of Cinnamon Ltd, and he currently holds 3,000 shares (with
matching voting rights) in the company. These shares were purchased on 23 April 2008 for £46,200.
Either Innocent or Nigel will sell 2,000 of their shares in Cinnamon Ltd during March 2013 for £65,000, but
are not sure which of them should make the disposal. For the tax year 2012–13, both Innocent and Nigel have
already made disposals which will fully utilise their annual exempt amounts, and they will each have taxable
income of £80,000While calculating the answer for, if innocent disposed the 2000 shares, the answer uses 10% as the cgt rate. Why? Isnt the basic band already used up if her taxable income is already 80,000 pounds?
thanks
I believe it’s because Innocent is entitled to entrepreneurs relief. As she holds more than 5% of the shares, and she is an employee of the company too, where her husband has less than 5% of the shares and he has never been an employee of the company, therefore it would be more tax efficient for Innocent to sell the shares and claim entrepreneurs relief, this way she will be taxed @ 10% instead of 40%.
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