Do those of you with shared household finances give shares to your spouse?

[Iliketax]

You mention employees here. I'm on a salary but isn't it a key point that many of us are directors but NOT employees?

No. That's not a distinction. For almost all the employment income tax rules a director is treated as an employee. And most directors of companies providing consultancy services are likely to be employees anyway.

So they talk about using alphabet shares to pay all employees via dividends, to avoid salary=>income tax. But my wife isn't an employee or involved in the running of the company.

That's right. But you are an employee. If the company issues your wife shares then they are almost certaintly employment-related securities (see s421B(1) and (3) ITEPA 2003) or if you transfer some of your shares to her (and use a pen to cross out "A" and add "B") they will still be ERSs. In both cases they are still linked to your employment and so you will be the one paying any employment income tax under Part 7 of ITEPA. If you really want fun, make the B shares redeemable and the tax is paid through PAYE and NIC is due too.

Further, they talk about this "soup" when many classes of share are used so everyone gets their own share class. I'm talking about one additional share class, specifically for my spouse

The guys who wrote the manual (I think Michael and Martin, but this bit could have been done by Jon and Tom) decided to put a funny name to it. Just to be clear, there is no actual soup involved. Also, when you do an example, you try to make your point by taking an extreme position. There is no point trying to illustrate something by making it finely nuanced.

as I've said I thought HMRC made special dispensation/understanding for financial arrangements between husband/wife?

You thought wrong. There are plenty of examples where tax, or potentially more tax, is due (e.g. SDLT if a mortgaged house is transferred, loss of exempt employee shareholder status, doesn't inherit ownership period for ER).

So I'm struggling to see this is the case I am discussing?

Maybe ask your morally upright IFA? Or if they don't know, perhaps a tax adviser?

A further query - why is it absolutely fine if I gift my wife some class A shares but potentially sticky for class B?

HMRC believe that the act of choosing to pay a discretionary dividend, where there is more than one classes of shares with discretionary dividend rights, artificially enhances the value of the shares that then gets the dividend. Chapter 3B taxes that artificial increase (terms and conditions apply). Paying a dividend on a single class of shares does not do so in an artificial way.

[Maslins]

Just to be clear, there is no actual soup involved.

Thanks for clarifying. I was wondering whether it was leak and potato or chicken and mushroom.

I was never great at quoting tax legislation, but if you can be bothered, have a detailed read over the outcome of the Arctic Systems case. I believe one of the things that was critical was that they had the same share class. Therefore there couldn't really be an argument that her shares were just a right to income.

Where you have different share classes, it adds weight to the argument that the spouse's shares are inferior in some way. Indeed I think QDOS's tax related insurance basically requires you to confirm that whilst you can have a spouse owning some shares, the rights are the same and dividends paid in line with shareholding, with no dividend waivers.

[pscont]

Thanks for clarifying. I was wondering whether it was leak and potato or chicken and mushroom.

I was never great at quoting tax legislation, but if you can be bothered, have a detailed read over the outcome of the Arctic Systems case. I believe one of the things that was critical was that they had the same share class. Therefore there couldn't really be an argument that her shares were just a right to income.

Where you have different share classes, it adds weight to the argument that the spouse's shares are inferior in some way. Indeed I think QDOS's tax related insurance basically requires you to confirm that whilst you can have a spouse owning some shares, the rights are the same and dividends paid in line with shareholding, with no dividend waivers.

AB shares can (and must for our purpose) have same rights and entitlements as regular shares.

[Iliketax]

I was never great at quoting tax legislation, but if you can be bothered, have a detailed read over the outcome of the Arctic Systems case. I believe one of the things that was critical was that they had the same share class. Therefore there couldn't really be an argument that her shares were just a right to income.

Thanks. It's been a long time since I read Jones v Garnett (and that was much more interesting that when I watched it live). They key point on the settlements legislation was that it would have been a problem if the shares were wholly or substantially a right to income. But the House of Lords said that they were not, so no problem. However, that has nothing to do with the point I'm making. Chapter 3B is new legislation (from 2003 onwards whereas this case was for 1999/2000) and works in a totally different basis.

[d000hg]

You seem a little obsessed with my "morally upright IFA". I'm not sure why. I said that to make it clear this is not some sleazy type who typically entices their clients into dodgy loopholes that are yet to be closed, only well-established tried and tested options. e.g. I cannot imagine they'd advise people in the past to go the BN66 route, etc. I was rather surprised a fairly straight-laced, conservative advisor would be so confident this was the way to go, is all. Previously I'd ruled it out.

Out of interest, what is the "correct" use of alphabet shares?

[northernladuk]

WordIsBond has a very different set up to us so has a business reason for using them. Lemme get the link.

https://www.contractoruk.com/forums/...st2603698.html

And some examples here.

Company Law Club // Alphabet shares

[DeludedKitten]

At the risk of assuming another's mantle and suggesting to search the forum, have you considered searching the forum?

A quick search finds this one from 2016, for example - https://www.contractoruk.com/forums/...to-missus.html

Might be worth asking the OP what they decided in the end.

[vwdan]

My wife has a 20% shareholding and has done from day one. My understanding was that HMRC had already lost that battle when it came to married couples, and I felt my wife deserved something for putting up with the time I was piling into starting a business and also fronting the capital which let me leave my permie job.

She was never an employee until she gave up work - I know it's not completely whiter than white, but the pay is very low and I'm lucky enough that she's a management accountant by trade so I can genuinely make the case that she assists with the day to day running, book keeeping etc.

[DeludedKitten]

My wife has a 20% shareholding and has done from day one. My understanding was that HMRC had already lost that battle when it came to married couples, and I felt my wife deserved something for putting up with the time I was piling into starting a business and also fronting the capital which let me leave my permie job.

She was never an employee until she gave up work - I know it's not completely whiter than white, but the pay is very low and I'm lucky enough that she's a management accountant by trade so I can genuinely make the case that she assists with the day to day running, book keeeping etc.

If she's done it from day one then it's pretty much irrelevant - even if somehow HMRC argued that the shares were caught by the settlements legislation, you would be taxed on the value of the gift. Which if it's done at startup is nothing.

[northernladuk]

At the risk of assuming another's mantle and suggesting to search the forum, have you considered searching the forum?

A quick search finds this one from 2016, for example - https://www.contractoruk.com/forums/...to-missus.html

Might be worth asking the OP what they decided in the end.

You might have missed that the guy in that link is also the guy that started this thread.