Does the rule about connected persons apply to the sale of shares?
I hold 100% of the share capital of my profitable trading company. I am interested in transferring my shares to a holding company for no consideration. I am also the 100% shareholder of the holding company, which has been in existence for a number of years. From my understanding, I cannot claim any form of holdover relief. I have seen the idea of a share-for-share exchange as a way of deferring capital gains tax (CGT), but I already own the share capital in the holding company, so I think this is a non-starter. If I were to go ahead with the transfer of the shares to the holding company, would the resulting gain be eligible for entrepreneur’s relief (ER), or is there a restriction because I am selling to a connected third party (i.e. the holding company I control)? Again, I know there is a restriction on ER relating to the sale of goodwill from an unincorporated business to a company controlled by the same person, but does the same rule about connected persons apply to the sale of shares? Also, would there be any stamp duty to pay?

Arthur Weller replies: 
See HMRC’s Capital Gains manual here: - you will note that you can do a share-for-share exchange without any CGT to pay now, even though you own the share capital in the holding company. Furthermore, see HMRC guidance at to 042450, which indicates that there should be no stamp duty on this transaction.

This question was first printed in Business Tax Insider in March 2018.

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