Question about "alphabet shares"

[concord]

Hello. I want to gift my wife 30% of the shares in my limited company and appoint her as a director. I spoke to my accountant and also to a solicitor about my options. The both said this is absolutely fine and mentioned that one option is creating a separate class of shares with equal rights and gifting those instead. If needed, the company could pay different dividend rates on each class. While I don't foresee this happening, they highlighted that it provides flexibility for the future.

I searched this forum and found many members suggesting that anyone who has received this kind of advice should find a new accountant or commented to the effect that it's something very dodgy. For example, in this post from last year, there was a poll and the overall results indicate a negative attitude towards multiple share classes.

Is the negativity on this forum justified? What evidence is it based on or is just a "feeling"?

Like the above post indicates, this advice has been given by many professionals. Furthermore, in this informative article on taxation.co.uk, the author mentions this as a valid option. The shares need to have the same rights and importantly, the company must have the reserves to pay the same level of dividend on each share class. The solicitor did mention there's no guarantee HMRC's view couldn't change in the future but for now, this is an option taken by many of his clients.

Thanks.

[eek]

Hello. I want to gift my wife 30% of the shares in my limited company and appoint her as a director. I spoke to my accountant and also to a solicitor about my options. The both said this is absolutely fine and mentioned that one option is creating a separate class of shares with equal rights and gifting those instead. If needed, the company could pay different dividend rates on each class. While I don't foresee this happening, they highlighted that it provides flexibility for the future.

I searched this forum and found many members suggesting that anyone who has received this kind of advice should find a new accountant or commented to the effect that it's something very dodgy. For example, in this post from last year, there was a poll and the overall results indicate a negative attitude towards multiple share classes.

Is the negativity on this forum justified? What evidence is it based on or is just a "feeling"?

Like the above post indicates, this advice has been given by many professionals. Furthermore, in this informative article on taxation.co.uk, the author mentions this as a valid option. The shares need to have the same rights and importantly, the company must have the reserves to pay the same level of dividend on each share class. The solicitor did mention there's no guarantee HMRC's view couldn't change in the future but for now, this is an option taken by many of his clients.

Thanks.

HMRC dislike them as it allows reward to be separate out from control and risk - especially as the only reason you are doing so is to maximise the tax benefits by paying one share class more than another.

[min]

HMRC dislike them as it allows reward to be separate out from control and risk - especially as the only reason you are doing so is to maximise the tax benefits by paying one share class more than another.

HMRC also dislikes income splitting with spouse with regular shares. HMRC dislikes a lot of things, but one payng the most possible tax and NIC. That is their job really.

However if the law gives you an legal option to utilize income with a spouse, do it. HMRC can do one.

In general the rule is, if it is legal and saves you tax, do it.

[northernladuk]

Much of the negativity is based on the advice that other people have been given and all of the accountants we have posting here. All the advice has been based on some pretty clear guidance on them and aggresive avoidance legislation that is also fairly clear. There is no direct line that marries the two and applies to us but it's pretty easy to read between the lines. The fact you are using the flexibility to artificially minimize the tax liability for no business purposes alone should tell you all you need to know.

Leave them alone. Plenty of other ways to safely minimize tax, maybe not to the penny you are after but still better than 90% of the population.

Bear in mind also, at the period in time, you maybe looking at inside gigs etc so will be a little more complicated and less use in the near future.

[malvolio]

Go back to the Arctic case. In essence you don't need to faff around with classes of shares; the whole point is that you and your wife share the risks as well as the benefits, so a basic share split is perfectly valid. Adding complexity to a simple situation merely marks you out as doing somehting to avoid taxes rather than for some purely business reason.

So why bother...?

[eek]

HMRC also dislikes income splitting with spouse with regular shares. HMRC dislikes a lot of things, but one payng the most possible tax and NIC. That is their job really.

However if the law gives you an legal option to utilize income with a spouse, do it. HMRC can do one.

In general the rule is, if it is legal and saves you tax, do it.

See Mal's point - a single share class with rewards split 50/50 or x/y isn't a problem.
multiple share classes override that risk argument and introduce tax avoidance issues - that's why none of the accounting companies like it.

For reference we are about to create a new class of share but that's because I need to offer employees options - and it's the easiest way of doing so without creating a separate company. In my case there is a business reason, in yours there isn't really one..

[Amanensia]

I know many other contractors that use different share classes for spouses in order to declare separate dividends. None of them have had any issues with this but I've never bothered with it, on the basis that I didn't think it was likely I'd ever need the flexibility and it just looked like the sort of thing that might raise HMRCs interest, even if it's "legal."

A similar outcome could be achieved by rebalancing shareholdings via gifts of shares between spouses from time to time, but doing that too often would also run the risk of raising eyebrows.

My purely personal opinion would be that if you don't foresee a situation where you are likely to need the flexibility then don't do it. But I'm fairly risk averse.

[northernladuk]

I know many other contractors that use different share classes for spouses in order to declare separate dividends. None of them have had any issues with this but I've never bothered with it, on the basis that I didn't think it was likely I'd ever need the flexibility and it just looked like the sort of thing that might raise HMRCs interest, even if it's "legal."

I know many contractors that haven't a clue about IR35, have house extensions paid by the company, paid for telly's etc via expenses, have their dog on the payroll and so on. They've not had issues so far as well.

This is not a good yardstick at all.

[Amanensia]

I know many contractors that haven't a clue about IR35, have house extensions paid by the company, paid for telly's etc via expenses, have their dog on the payroll and so on. They've not had issues so far as well.

This is not a good yardstick at all.

I'm not saying it is! As I made clear in the rest of my post, it's not something I have done or would do.

[Lance]

Go back to the Arctic case. In essence you don't need to faff around with classes of shares; the whole point is that you and your wife share the risks as well as the benefits, so a basic share split is perfectly valid. Adding complexity to a simple situation merely marks you out as doing somehting to avoid taxes rather than for some purely business reason.

So why bother...?

For me it's back to the Arctic case but a slighly different reasoning.

In the case of Arctic, income shifting is allowed for equal class of shares. On that basis income shifting different classes is not something tested and proven to be OK.