My clients own 90% of their own trading company. The remaining 10% of the shares are owned by their three adult children (split 4%, 4% and 2%). They are looking at the possibility of selling the business in the next 18-24 months and want to minimize the children’s exposure to any potential capital gains tax charge. What are the potential options? At present, the children have very small minority holdings in the company and do not currently qualify for Entrepreneurs Relief (ER) because their holdings are under the required 5% level needed. Therefore, any capital gains tax will currently be at 18%. In order for the children to qualify for ER and the 10% rate of capital gains tax, they need to ensure their holdings are above the cut-off point. There are several planning opportunities available to them including (but not an exhaustive list): 1. The company children could subscribe for new shares in the company to increase their holding to the required 5% threshold. However, this would dilute the parents’ shareholding and would result in a reduction of any potential sale proceeds attributable to the parents. This also triggers a capital gains value shifting charge on the parents however the parents and the children can make a joint election to hold over any gains. 2. It would be possible to insert a management company between the children and the trading company. The shareholding of the management company could be split 40%, 40% and 20% between the three children. 3. As all of the children are employees in the company, they could receive shares under a “nil/partial paid”, or similar share scheme. The number of shares will be enough to ensure that the children meet the 5% holding. As the shares issued will have been granted by reason of their employment in the business, there will be a potential liability for both PAYE and NIC contributions under the employment related securities legislation. In certain cases however there is exemption where shares are given to family members. The full subscription price will be required to be paid at some time (usually on future sale). On disposal these shares will be subject only to capital gains tax. The rights attributable to these shares can be identified in the articles of association and can vary from the other ordinary share capital. This includes voting rights, dividend eligibility etc. 4. It will also be necessary to ensure that the children are directors or employees for a period of 12 months up to the date of the disposal of the shares in order to qualifying for ER.