wife as a shareholder

[TheFaQQer]

It also increases the risk of an HMRC investigation

Is there any evidence of that, or is it just word of mouth?

[WordIsBond]

But neither of those examples are a one man band as they have employees??

Yeah, thus my next to last sentence. A one-man band that uses two share classes probably does not have a business reason for doing so and thus probably is on the wrong side of the law.

Is there any evidence of that, or is it just word of mouth?

To be fair, sort of in between. I've read it in articles (not just forum comments) on contractor sites, this one or perhaps Contractor Weekly, don't remember.

It is established fact that HMRC has access to Companies House listings and knows who has more than one class of shares. If they are doing their job, they should be filtering for companies with two shareholders, each with a different class of shares, and looking to see what kind of company it is, what role the shareholders have, etc.

[TheCyclingProgrammer]

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).

[TheFaQQer]

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.

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.

[Bozwell]

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.

[northernladuk]

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.

It might attract unwanted attention and is not recommended to do regularly or to close together as it looks like you are trying to set the levels to avoid tax and is not business driven...which is what you are doing... So correct.

[northernladuk]

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.

Absolutely but if it becomes a standard action carried out by every contractor the one test case would shut everyone down so considerable amounts...Particularly if it can be applied retrospectively

[eazy]

Options to consider

My understanding was that different share classes do not have same rights as Ordinary shares. They only have right to income which may fall foul of settlements legislation. I would avoid.

You can gift ordinary shares to your wife by having a directors board meeting, which will get reported via the annual companies house return. Paying bonuses/Salary may fall under auto-enrolment pension rules unless you appoint her as a Director.

[administrator]

I am not saying class B is definitely the right way, or wrong way to do it. My account recommended it so it's his PI on the line if it goes tits up

Cheers for the link to the Patmore thread on AW. I am not sure that class of shares is likely to throw an investigation any more than any other husband and wife structure. But IANAA so your pays your money and you takes your choice - and you make sure your accountant informs you as to how it should be arranged and that he has PI. I also have investigation insurance and say a little prayer every night that the finger won't fall on me!

[WordIsBond]

My understanding was that different share classes do not have same rights as Ordinary shares. They only have right to income which may fall foul of settlements legislation. I would avoid.

This may or may not be true. There are many different variables that can be used, here's a very brief discussion of some of them.

My company's class B shares have the same voting rights and capital rights as our Class A shares. If they don't have those rights, you could fall foul of settlements legislation, but as always, it depends on the situation.

You can gift ordinary shares to your wife by having a directors board meeting, which will get reported via the annual companies house return. Paying bonuses/Salary may fall under auto-enrolment pension rules unless you appoint her as a Director.

You can personally gift ordinary shares without a directors' meeting, as well.

The biggest issue, as always, is whether the marriage is secure and what you are putting at risk when you do this. If the marriage isn't rock-solid, just remember, you are giving away part of your company. Of course, if you always disburse all company funds every year, it's not that big of a deal. You can always just stop working for that company and start another one, if things fall apart between you and your wife. But if you retain a large warchest in your company, in giving shares away you are also giving away future rights to a big chunk of that warchest. If she is going to run off with your accountant and spend it on a villa in Spain for the two of them, don't give her the shares.