Working/Sharing with family members (not spouse)

[PeejeUK]

Hey guys, i have some questions i couldn't find answers to on the forum that involves working with family members, where most articles talk about husband/wife arrangements. Please help.

So my brother has a large income from contracting for several companies, while I on the other hand have very limited income in the UK and tend to work abroad for low pay (and low expense) and have plenty of skills he needs, as well as free time, where as he doesn't. I also have a small business that doesn't really turn a profit yet but may do in future years. As a family, we're wondering how I can get involved with his company, with the potential to do the same work he does one day.

Questions:

1) Am I able to buy shares from his business (just as someone could buy shares from my limited company) and then take a dividend in the long term? I saved a lot and have some inheritence and i'd be happy to pay a lump sum today in order to potentially gain more in the long term from dividends.

2) If i do all his online work, his website, marketing etc, what kind of shares/wage could I legally be able to get/earn?

3) If i had either shares or a wage from his company, would i be able to put some course/training fees (related to the company industry) through the company? I need training to do what he does, so that would help a lot.

What I struggle to understand with this is how it differs from typical limited company share structures. Because as far as i'm aware, i can sell my shares to whoever i like and pay out dividends on them. Just not sure how the contracting situation changes that.

Thanks for your help. Only looking for legal ways to work with my brother and help grow his business. Thanks.

[northernladuk]

Dunno about all the other stuff but the training is has some rules around it but also a massive grey area. It has to be in a skill you sell at the moment and not something new that you could charge for later.

The company can pay for any training it wants really but it depends on whether you can claim tax relief on it as to whether it's worthwhile putting it through the company. That said, the fact you say you need training to do what he does I think actually looks like a flat no.

As to the general question, as long as you think about as a company, shareholder, employee and do it that way you should be fine. If you are looking for favourable treatment because it's your family you are probably getting in to aggressive tax avoidance. For example. If you buy the shares at a ridiculously low amount and start bringing in 10's of k of money it's going to look like avoidance. If it's a reasonable market value then you'll be fine. Question we don't know is how much is market value?
Question is though why would your brother give you his money via dividends in return for next to nothing? That's when it starts looking a big iffy.

Personally I'd say you keep family and money completely separate but I appreciate that's not how some work. Just my opinion.

[PeejeUK]

Dunno about all the other stuff but the training is has some rules around it but also a massive grey area. It has to be in a skill you sell at the moment and not something new that you could charge for later.

The company can pay for any training it wants really but it depends on whether you can claim tax relief on it as to whether it's worthwhile putting it through the company. That said, the fact you say you need training to do what he does I think actually looks like a flat no.

As to the general question, as long as you think about as a company, shareholder, employee and do it that way you should be fine. If you are looking for favourable treatment because it's your family you are probably getting in to aggressive tax avoidance. For example. If you buy the shares at a ridiculously low amount and start bringing in 10's of k of money it's going to look like avoidance. If it's a reasonable market value then you'll be fine. Question we don't know is how much is market value?
Question is though why would your brother give you his money via dividends in return for next to nothing? That's when it starts looking a big iffy.

Personally I'd say you keep family and money completely separate but I appreciate that's not how some work. Just my opinion.

Wow, thanks very much for the advice. Training sounds like a big no then. Unless i got some unpaid for training in his field (health and safety) and could potentially take more courses later.

Regarding the other points, i would have no issue paying a high amount for the shares. I have cash in the bank, where i think he actually doesn't have much due to mortgage and family expenses. On the face of it, it may seem like tax avoidance to pay for shares that would get me a long term dividend. I'm just wondering what the issue would be? That's just how business works. You buy shares, if it does well then you get profits over the long term. It seems to me like both tax avoidance and also legit business, it must be one or the other.

Also happy to do some services for his business, such as SEO, online marketing, also looking at advising him on investments (although that sounds like personal rather than a business expense). It's just a case of i have a large tax allowance to spare, while he's paying 40%. So it makes good sense to pay me for anything i can do, rather than for him to do it or to pay some outside help. So long as it's at a fair market rate, that's ok right?

[northernladuk]

Regarding the other points, i would have no issue paying a high amount for the shares. I have cash in the bank, where i think he actually doesn't have much due to mortgage and family expenses. On the face of it, it may seem like tax avoidance to pay for shares that would get me a long term dividend. I'm just wondering what the issue would be? That's just how business works. You buy shares, if it does well then you get profits over the long term. It seems to me like both tax avoidance and also legit business, it must be one or the other.

Also happy to do some services for his business, such as SEO, online marketing, also looking at advising him on investments (although that sounds like personal rather than a business expense). It's just a case of i have a large tax allowance to spare, while he's paying 40%. So it makes good sense to pay me for anything i can do, rather than for him to do it or to pay some outside help. So long as it's at a fair market rate, that's ok right?

Somethings not right here and you've got a very complex situation evolving. Surely you want to do this as efficiently for both of you, not just chuck money around. I think you are mixing up personal and business situation all over the place.

You say he has a big income but then he's not got much cash in the bank, but buying shares off him means the money goes to the business. You give him a lump sum which he'll have to extra from the business extremely inefficiently as he's already over his 40%. He's then losing money out of the company to pay your dividends which will surely be more than you've paid so he's losing money for no reason except to prop you up so you aren't helping his money over the long term at all.

You also mix up your 40% personal tax bracket but talk about paying you from the business so doesn't really help him at all. You get more money in your pocket because of your tax position and he's diverting money to you so that's fair enough, just not sure why you are linking the business with your tax situation. Keeping it in the family is understandable though.

I'd say you need to get some proper advice. We've no idea about any of the details and they are whats got to count. Get this wrong and it's going to end up a right mess and attract all kinds of unwanted attention.

Maybe do one now and one later but suddenly getting shares and being paid a wage certainly on the fact of it looks quite odd. As I say I understand some families do this and it's all probably above board. Get his accountant to look in to it or spend a little bit for some proper advice. Might cost you but you've got a solid way forward.

[SuperLooper]

but buying shares off him means the money goes to the business. You give him a lump sum which he'll have to extra from the business extremely inefficiently as he's already over his 40%.

Buying existing shares from a shareholder means money goes directly to the shareholder, and may be subject to CGT. No?

[PeejeUK]

Somethings not right here and you've got a very complex situation evolving. Surely you want to do this as efficiently for both of you, not just chuck money around. I think you are mixing up personal and business situation all over the place.

You say he has a big income but then he's not got much cash in the bank, but buying shares off him means the money goes to the business. You give him a lump sum which he'll have to extra from the business extremely inefficiently as he's already over his 40%. He's then losing money out of the company to pay your dividends which will surely be more than you've paid so he's losing money for no reason except to prop you up so you aren't helping his money over the long term at all.

You also mix up your 40% personal tax bracket but talk about paying you from the business so doesn't really help him at all. You get more money in your pocket because of your tax position and he's diverting money to you so that's fair enough, just not sure why you are linking the business with your tax situation. Keeping it in the family is understandable though.

I'd say you need to get some proper advice. We've no idea about any of the details and they are whats got to count. Get this wrong and it's going to end up a right mess and attract all kinds of unwanted attention.

Maybe do one now and one later but suddenly getting shares and being paid a wage certainly on the fact of it looks quite odd. As I say I understand some families do this and it's all probably above board. Get his accountant to look in to it or spend a little bit for some proper advice. Might cost you but you've got a solid way forward.

Brilliant, thanks again for your thoughts. I'm not proposing all of those things, just trying to work out which of them is the best way forward. To summarise:

The contractor has a large income, large taxes due, very little free time and not much capital either.
The family member has a low income, but much free time and capital.

The question is: can the family member legally buy shares and benefit from dividends in the long run?
or
Can the family member be paid by the contractor a reasonable, competitive wage for services?

Essentially he needs help and as a family, it's good for us to work together and potentially expand the business in the long run.

My brother would be glad to receive capital in the short term and is happy for me to benefit from his income in the long run, even if it results in a loss overall.

I mean, i have 2 investors myself who could end up profiting from my hard work. Neither are family members so there's nothing remotely dodgy about it. So surely i can buy shares in his company, in the belief that it'll pay off in the long run and there should be no question marks over it right? My understanding is that we would run into issues if any of the money i received found its way back into his pocket. That would be tax avoidance.

Can anyone confirm whether it's ok to buy shares in a family member's company and potentially benefit from dividends in the long run?

[PeejeUK]

Buying existing shares from a shareholder means money goes directly to the shareholder, and may be subject to CGT. No?

Ahh yes, good point. So if they were bought directly from the shareholder, then there's capital gains to pay. If new shares are issued for a new investor, then the money goes to the company.

I think we would be looking at the first one mainly. His company doesn't need any extra funds really. But he could do with it for home renovations and short term costs raising a second child. Even if i did end up profiting in the long term, he's fine with that since i'm his brother. But potentially i could have to work for it and i'd be glad to.

Cheers again for your advice.

[northernladuk]

Buying existing shares from a shareholder means money goes directly to the shareholder, and may be subject to CGT. No?

Hmm good point. I best leave the intricacies of this one to someone better qualified.

[Lance]

Working/Sharing with family members (not spouse)

Ahh yes, good point. So if they were bought directly from the shareholder, then there's capital gains to pay. If new shares are issued for a new investor, then the money goes to the company.

I think we would be looking at the first one mainly. His company doesn't need any extra funds really. But he could do with it for home renovations and short term costs raising a second child. Even if i did end up profiting in the long term, he's fine with that since i'm his brother. But potentially i could have to work for it and i'd be glad to.

Cheers again for your advice.

You need to speak to a specialist about the CGT implications.
Of course there is a £10k allowance for CGT per year so OP could buy £10k worth in year 1 and again in yr 2. There are other rules though like entrepreneurs relief that a specialist will help with.

Or the company does a share issue and the shares are bought as a capital investment directly into the company.

However you do it though, you must get legal advice. It will cost but will provide a shareholders agreement (a contract) that determines what happens in the future. For example, one of you dies, gets divorced, becomes too ill to work, you decide to hate each other, and many other scenarios.