Income Shifting

[boxman]

I'm wondering if anyone with shares held by a spouse ought to be looking at a share buyback by yourco?

[dude69]

I'm wondering if anyone with shares held by a spouse ought to be looking at a share buyback by yourco?

The mechanics of HOW you do it aren't relevant at this point (nor are they particularly difficult to implement).

What matters is that if you currently have a spouse without any taxable income apart from your dividends, then she will not be able to get those dividends next year.

For 2008-09, I believe the higher rate starts at £36,000 of taxable income (i.e. £36k + personal allowance).

If you pay that out as a dividend to yourself, it will cost £36,000 * 25% = £9,000

Previously it would have cost nothing

So the bottom line is you will be £9,000 poorer next year, assuming you pay the same amount of dividends (which assumes that your company makes at least £72,000 in profit).

On top of that, there's the Corporation Tax rises to worry about, another 1% in April, going up to 21% then, which on that £72,000 is £1,500.

So it's well over £10k in tax rises.....

[FarmerPalmer]

So one could employ your wife do perform admin & accounting duties for the business, which mine does, and pay a salary, but from 2008/2009 she will no longer be able to be a shareholder.

I love this government

[dude69]

Bit confused by the Pre-budget document

http://news.bbc.co.uk/1/shared/bsp/h...pbr_report.pdf

It says 2008-09 Tacking Income Shifting +£25m, 2009-10 £260m

But then it says it will be introduced for 2008-09, so why would they only make £25m out of it in 2008-09, but £260m in 2009-10?

[Sysman]

What matters is that if you currently have a spouse without any taxable income apart from your dividends, then she will not be able to get those dividends next year.

What happens where the spouse provided the startup capital of the company? Surely there is entitlement to dividends there.

I'm not thinking of a typical IT contractor company here, but one which involves substantial dosh to set up in the first place.

[dude69]

What happens where the spouse provided the startup capital of the company? Surely there is entitlement to dividends there.

I'm not thinking of a typical IT contractor company here, but one which involves substantial dosh to set up in the first place.

It is going to be quite complex I think. I'm sure there will be IR35-style avoidance/scope issues.

But your basic contractor company with only the one person working is clearly in scope.

[ryebank]

Why 25%

For 2008-09, I believe the higher rate starts at £36,000 of taxable income (i.e. £36k + personal allowance).

If you pay that out as a dividend to yourself, it will cost £36,000 * 25% = £9,000

Previously it would have cost nothing

So the bottom line is you will be £9,000 poorer next year, assuming you pay the same amount of dividends (which assumes that your company makes at least £72,000 in profit).

Why have you used 25% for the £36k - surely if you are making £72k then the £36k lower rate is already used so it should be 40% if you take on the extra £36k from your spouse

[ryebank]

So if my spouse cannot earn divi's on the shares it is only right the company buys the shares back isn't it ? - assuming the original £1 share is worth a hell of a lot more (as after all it is a "right" to all those divi's) would it be OK to:

1. Have the company buy back the shares and deduct this cost from (company) taxable profits

2. Have my spouse pay only CGT on the profit from selling back the shares - and if so if this happens pre 2007/8 would that be one of the things that gets a 10% CGT rate (shares held well over 2 years) or is it best to wait for the start of 2007/8 and the new flat 18% CGT rate?

[sathyaram_s]

http://www.direct.gov.uk/en/MoneyTax...nts/DG_4016453

The 32.5% works out to 25% after tax credit adjustment.

Why have you used 25% for the £36k - surely if you are making £72k then the £36k lower rate is already used so it should be 40% if you take on the extra £36k from your spouse

[ryebank]

http://www.direct.gov.uk/en/MoneyTax...nts/DG_4016453

The 32.5% works out to 25% after tax credit adjustment.

Ahhh ... thanks