Transfer shareholding to non resident Parents

[sapsam]

Hi All,

I have asked this question to my accountant as well(awaiting response), but wanted views from the group. My wife has 40% shareholding in LTD company with other 60% with me. She intends to start fulltime work and is likely to earn enough to push her in higher tax band. She wants to give her shares 20% to her parents and 20% to my parents, both sets of parents are not resident in uk.
1. Would s660 apply in both cases. We dont have need access to potential dividends going to parents.
2. If above is possible, can they be gifted or fair value needs to be paid for the shares?
3. If above is not possible, is it better to gift share to me so I become 100% shareholder and retain the profits.



Regards,

Sam

[TheCyclingProgrammer]

No definitive answer to this but:

1. If the shares are sold at fair market value, there is no settlement and settlements legislation will not apply.

2. If shares are gifted, the transfer would be considered a settlement, so s624 of the settlements legislation would need to be considered, meaning...

3. Whether any dividends paid to the parents are treated as taxable on the settlor (your wife) would depend on whether she, or her spouse (you) retains an interest in the shares or any dividends. What constitutes retained interest is the key issue here and there's no definitive answer - the wording of the legislation is broad. But if you want to go by HMRC's own manual on the subject, they generally seem to consider retained interest to be present where shares are gifted with strings attached...this could be conditions stipulating that the shares be returned, or dividends paid back to you for example.

See:
TSEM4200 - Settlements legislation: settlor retains an interest

To summarise, if she gives the shares away unconditionally and the parents receive all dividends to do with as they please then it probably wouldn't be caught. But you would be giving away a share of your company and its profits so I'm really not sure why you want to do this unless you're both being very generous or you were really hoping that money would find its way back to you.

You could speak to your accountant about changing your wife's share class, still with voting rights and right to capital on winding up, but then you can just declare dividends for your class of share and not your wife's.

[JB3000]

Hi All,

I have asked this question to my accountant as well(awaiting response), but wanted views from the group. My wife has 40% shareholding in LTD company with other 60% with me. She intends to start fulltime work and is likely to earn enough to push her in higher tax band. She wants to give her shares 20% to her parents and 20% to my parents, both sets of parents are not resident in uk.
1. Would s660 apply in both cases. We dont have need access to potential dividends going to parents.
2. If above is possible, can they be gifted or fair value needs to be paid for the shares?
3. If above is not possible, is it better to gift share to me so I become 100% shareholder and retain the profits.



Regards,

Sam

It's these types of arrangements which makes me feel happy that "one month then payroll" could be coming in.

"The settlements legislation is intended to prevent an individual from gaining a tax advantage by making arrangements which divert his or her income to another person who is liable at a lower rate of tax or is not liable to income tax. It applies only where the settlor has retained an interest in the settled property or income"

TSEM4015 - Settlements legislation: effects of the settlements legislation