A little security

I would very much appreciate Taxation readers' assistance with the following problem:

My client started a small part-time security business as a sole trader in 1986. The business progressed at a very modest pace for many years until 1999 when he decided to incorporate on 1 December of that year for reasons of professional indemnity.

The issued share capital of the company was £100 which was divisible on the basis of £5 to each of his two adult children — who worked full-time in the business — and £90 to himself. Thereafter progress accelerated and after many months of negotiations the shares were bought by a conglomerate for £2 000 000 in cash on 1 February 2007 and £300 000 in qualifying corporate bonds to be redeemed in equal instalments over 24 months starting on I August 2007.

My client worked full-time until 1 February 2007...