Dilution of Husband Wife Company Shares

[yamyam]

Morning, looking for a bit of advice from anyone who may have done what I'm thinking about doing with my Ltd please.

I set up around 5 years ago 50:50 with my wife who was taking a break from the NHS. This worked great, utilising her lower tax rates for the first few years.

She has been working part time & earning a salary swell which has made tax planning a bit less straightforward.

Our accountant advised us to change the share split to 60:40 in my favour.

We have come to a point where she wants to return to work full time. I'd like to remove her from the business, removing her shares (diluting maybe or buying her out?).

What would be the best way to conclude her relationship with the Ltd?

Thank you

[pr1]

AFAIK if you are married you can gift each other shares back and forth as you please - draft up new share certificates with the new proportions and both sign

[Fred Bloggs]

Did your accountant explain to you that changes in shareholdings where the only purpose is taxation motivated is likely to be looked upon dimly should you be investigated by HMRC? I am not saying don't do it. But I suspect in a year or two when your circumstances change again, there's going to be another question about changing shareholdings once more.

[northernladuk]

AFAIK if you are married you can gift each other shares back and forth as you please - draft up new share certificates with the new proportions and both sign

Yes but no. Highly simplistic the point of being bad advice. You can't do it as you please. Process wise you can but you are going to attract the attention of HMRC who will question why you are changing it 'as you please'. The answer (to them) will be aggressive tax avoidance which they will not like. You really should keep changes to divis to an absolute minimum if at all possible so as not to attract attention to a situation HMRC will be more than interested in.

[Lance]

Yes but no. Highly simplistic the point of being bad advice. You can't do it as you please. Process wise you can but you are going to attract the attention of HMRC who will question why you are changing it 'as you please'. The answer (to them) will be aggressive tax avoidance which they will not like. You really should keep changes to divis to an absolute minimum if at all possible so as not to attract attention to a situation HMRC will be more than interested in.

Agreed.

Arctic systems allows income shifting between spouses as a tax avoidance mechanism, but that case does not include frequent changes to the share holding. So IMO (IANAL) changing all the time risks removing the protection provided by the Arctic systems case.

As for OP. 50/50 to 60/40???? Really?? There's not much to be saved from that. Just leave it.
If it was moving from 50/50 to 80/20 then yeah go for it. But leave it like that for some years.

[yamyam]

Yes but no. Highly simplistic the point of being bad advice. You can't do it as you please. Process wise you can but you are going to attract the attention of HMRC who will question why you are changing it 'as you please'. The answer (to them) will be aggressive tax avoidance which they will not like. You really should keep changes to divis to an absolute minimum if at all possible so as not to attract attention to a situation HMRC will be more than interested in.

Thanks. It's a shame really! They'd shop their own grandma if it meant £0.01p in revenue.

Agreed.

Arctic systems allows income shifting between spouses as a tax avoidance mechanism, but that case does not include frequent changes to the share holding. So IMO (IANAL) changing all the time risks removing the protection provided by the Arctic systems case.

As for OP. 50/50 to 60/40???? Really?? There's not much to be saved from that. Just leave it.
If it was moving from 50/50 to 80/20 then yeah go for it. But leave it like that for some years.

Sorry maybe I wasn't quite clear. We were 50:50 when we setup, but went to 60:40 in early 2021. I think the answer is start another Ltd, being 100% on my own.

[WTFH]

Sorry maybe I wasn't quite clear. We were 50:50 when we setup, but went to 60:40 in early 2021. I think the answer is start another Ltd, being 100% on my own.

Do you have much money in the old company?
How do you plan to get that out, because phoenixing is considered a really bad idea.

[eek]

Do you have much money in the old company?
How do you plan to get that out, because phoenixing is considered a really bad idea.

Really? For many years some accountants recommended Phoenicians every few years (where possible) to avoid the risk of IR35 attacks.

and I can name some posters here who will have multiple companies covering different pieces of work (myself included).

[WTFH]

Really? For many years some accountants recommended Phoenicians every few years (where possible) to avoid the risk of IR35 attacks.

and I can name some posters here who will have multiple companies covering different pieces of work (myself included).

I mean, if he's going to claim ER on one company and immediately set up a new one doing exactly the same thing. Do you not consider that a bad idea?

[Lance]

I mean, if he's going to claim ER on one company and immediately set up a new one doing exactly the same thing. Do you not consider that a bad idea?

you means a capital distribution.
TAAR has no relevance to ER/BADR. It covers capital gains (of which ER/BADR is simply a tax relief).
Taking the cash as dividends and starting a new company is absolutely fine in this regard.