wife as a shareholder

[northernladuk]

Ultimately, the Arctic case hinged on determining whether a gift of ordinary shares was a right to income or more than that, in order for the spouse exemption to apply. As it found that ordinary shares with full voting rights and right to capital distributions meant they were more than just a right to income, the spouse exemption applied.

So what difference does it make if the shares are different classes so long as they are ordinary shares with equal rights attached to them? I don't think the settlements legislation would apply here.

That's not to say of course that HMRC wouldn't try and find some other means of attack (GAAR?) so I do agree in principle that this approach is "riskier" than sticking with on class of shares, in so much as you could end up being the first "test case" for an attack on this approach.

Some interesting further discussion here if you're bored:
Alphabet shares | AccountingWEB

Personally, I would just speak to your accountant and try and figure out the optimum split between you and your wife (which will need to take into consideration her current earnings) and split your ordinary shares accordingly. A lot of people do a 50/50 split but it doesn't have to be that (my wife only has 25% for instance).

Thinking about this in relation to what TF said about the 5k tax free......

Going back to the basics of the Arctic case, it was agreed that remuneration to the wife because she supports the husband in running the company was fair. I can't work away without her support so why shouldn't she get something for that.

I wonder what would happen if HMRC accept this 5k payment (exactly how to be sorted later) and concedes that this is a reasonable amount for that support but in return clamps down hard on any share structures where the wife is paid 11k wage and has anything more than a 30% split. That way they would satisfy the fact that the wife can receive reasonable remuneration for her support and closes the loopholes where half the dividend goes to the wife.

[WordIsBond]

I wonder what would happen if HMRC accept this 5k payment (exactly how to be sorted later) and concedes that this is a reasonable amount for that support but in return clamps down hard on any share structures where the wife is paid 11k wage and has anything more than a 30% split. That way they would satisfy the fact that the wife can receive reasonable remuneration for her support and closes the loopholes where half the dividend goes to the wife.

If they can figure out how to define a PSC, they could probably do something like that. But there are so many different kinds of companies. If my wife and I start a company and use it to buy the shop down the street, is there any reason my wife can't own half or more of the company? Even if she never works in the shop, and only does the bookkeeping? What if she put up 80% of the capital? What if the money came out of our joint savings? What if it came out of my savings and i gave her the money to make the capital investment so it could be in her name? Why is any of that really any business of HMRC? As long as it is actual ownership of the company, so that she owns an asset even if we divorce, has voting rights, gets a proportional payout if we sell the company, etc, how can or should they have anything to say about it?

This kind of thing only makes sense if your company is you, rather than a separate entity. If your company is a separate entity, then of course other people can own part of it. If your company is really only just you (a PSC), then no, it doesn't make sense for other people to own part of it.

[northernladuk]

If they can figure out how to define a PSC, they could probably do something like that. But there are so many different kinds of companies. If my wife and I start a company and use it to buy the shop down the street, is there any reason my wife can't own half or more of the company? Even if she never works in the shop, and only does the bookkeeping? What if she put up 80% of the capital? What if the money came out of our joint savings? What if it came out of my savings and i gave her the money to make the capital investment so it could be in her name? Why is any of that really any business of HMRC? As long as it is actual ownership of the company, so that she owns an asset even if we divorce, has voting rights, gets a proportional payout if we sell the company, etc, how can or should they have anything to say about it?

This kind of thing only makes sense if your company is you, rather than a separate entity. If your company is a separate entity, then of course other people can own part of it. If your company is really only just you (a PSC), then no, it doesn't make sense for other people to own part of it.

Maybe not but it's been agreed that the wife should be rewarded somehow for the intangible elements. Wage isn't efficient and she doesn't do work so is not an option so shares and ownership is the only way. With a class B she isn't actually owning the company either so if HMRC will take a pragmatic stance on this it could be an option.

Not sure how your wife owning 80% of a shop has to do with our situation though.

[WordIsBond]

Not sure how your wife owning 80% of a shop has to do with our situation though.

Well, legislation has to either encompass all companies or distinguish between them. That's why I said that what you suggested would be workable if they could define a PSC. If they did that, then they could bring in a rule like you suggested for PSCs only. Otherwise, the rule would have to apply to my wife owning 80% of a shop, too.

Since they still haven't figured out how to legally define a PSC, I don't think your suggestion is workable. It doesn't make sense for us if we buy the corner shop, and they haven't figured out in legislation how to distinguish between your contracting business and our corner shop.

[northernladuk]

Well, legislation has to either encompass all companies or distinguish between them. That's why I said that what you suggested would be workable if they could define a PSC. If they did that, then they could bring in a rule like you suggested for PSCs only. Otherwise, the rule would have to apply to my wife owning 80% of a shop, too.

Since they still haven't figured out how to legally define a PSC, I don't think your suggestion is workable. It doesn't make sense for us if we buy the corner shop, and they haven't figured out in legislation how to distinguish between your contracting business and our corner shop.

Ah right.. Should be the wife of any business really. Even more so if there is a tangible connect such as that investment.

[TheCyclingProgrammer]

If you did it to pay your spouse £5k a year and nothing more, then it would be a very expensive test case.

But that's never stopped HMRC before.

Indeed.

[TheCyclingProgrammer]

In my case my wife has part time job where her salary is likely to increase in the future. It will probably be worth me allocating her shares for the rest of this tax year (50/50) but next year her salary would mean that 50/50 is no longer the most tax efficient split (and then there are the new dividend changes). I'm assuming that HMRC wouldn't look kindly if I reduced her shareholding next year.

So start with a lower shareholding now. Don't lose sleep over not being able to extract the maximum for this tax year.