Readers’ forum: Tax implication of undervalue of shares

We have been asked to assist a third party with a company purchase of own shares in a two man company. Everything falls within the regulations surrounding these transactions but in our opinion the price being paid for the shares is significantly lower than market value. While the POS rules don’t require that market value is paid we believe that there could be adverse tax implications from the undervalue. 

TCGA 1992 s 17 could be applied to replace proceeds with market value for CGT purposes and there is a potential chargeable lifetime transfer for IHT purposes but is there any tax implication for the remaining shareholder? The value of their shares will have increased as a result of the sale at undervalue. Is this caught by employment related securities regulations?

Query 20 452 – Robin.

Potential tax issues if the price paid is less...