Ken Clarke stock sale beats CGT rise
By John Willman, Business Editor
Financial Times Published: March 7 2008 22:10
Ken Clarke, the former Tory chancellor, has sold all his shares in British American Tobacco eight weeks before stepping down from the company¹s board, ahead of the 80 per cent increase in capital gains tax that comes into force on April 6.
The sale of 4,779 shares at £18.41 netted Mr Clarke, a non-executive director of the company since April 1998, almost £88,000 before costs. It will have saved several thousand pounds in tax, since most of the shares were acquired before January 2000 when BAT shares were below £6.50 and often much cheaper.
Mr Clarke, who cited estate and tax planning as reasons for the sale, has joined a growing band of directors and entrepreneurs disposing of business assets before the end of the tax year, when the minimum CGT rate will rise from 10 per cent to 18 per cent.
Many of the directors who have sold shares in their companies to lock in the lower tax rate want to continue owning them, and some have said they intend to buy them back after the 30 days¹ delay required by HM Revenue & Customs for the sale to count as a disposal for tax purposes.
However, many have held back from these so-called ³bed and breakfast² deals, said Kevin Nicholson of PwC, the professional services firm, because of uncertainty over the rules governing sales of shares in listed companies by directors.
³We¹re getting a lot of enquiries from directors about regulatory issues around selling shares about when closed periods prevent it and which shares can be sold,² he said.The number of such deals by directors is likely to grow in the run-up to the financial year-end, following publication of new guidance for listed companies from the Financial Services Authority, which says they are permissible under certain conditions.
To avoid falling foul of the rules on insider dealing by directors, such sales can be approved only if the repurchase arrangements are fixed at the same time to avoid giving the impression that they are speculative.
Sales should not be carried out during the periods when directors cannot deal in the company shares, even though they are purely for tax purposes. Companies should consider announcing the sales are for CGT purposes when informing the stock market, the FSA said. This would avoid misleading investors.