Shareholding structure for Ltd

[VFV]

I am about to form my Ltd company with a plan to start contracting for the first time around September. I have been looking for the most efficient shareholding structure and have to confess i am a little confused about the income shifting regulations for non-family (husband&wife) companies.

Assuming i will be outside the scope of IR35, i expect to charge a rate that will bring me above the higher-tax threshold. My fiancee is a high earner so not an option for a shareholder in the company. I consider the following two alternatives:


1. Set up the Ltd with myself and my brother as shareholders. My brother is not resident in the UK, but could help me with some of the admin (invoicing bookkeeping and marketing). Does s660 apply to this non husband&wife scenario? Would a 70-30 split be less of a red flag for the taxman than a 50-50, if the split is relevant at all?

2. Set up a Ltd with myself as sole owner , draw a salary of £7-8k plus claimed expenses, and only pay dividends up to the start of the higher rate threshold. Then pay the undistributed earnings to myself during career breaks, periods out of employment etc.

Any advice will be greatly appreciated, I guess the main question is what are my real shareholding sharing options since i don't have a spouse with low income.

Thanks,
VFV

[SackmanandCo]

from a practical viewpoint, do you really want to gift 30% of shares to your brother? In reality, the income shifting legislation is not a priority for HMRC at present. Your second option sounds sensible.

[THEPUMA]

Aside from the trust issues around giving your brother shares, the technical answer is that if the money is paid by dividend to your brother and then passed through to you it would be caught by s660 as the exemption relied upon by the H&W in the Arctic Systems case only applies between spouses.

So it only works if it is a genuine gift to your brother.

The second alternative sounds wholly sensible and, pending the emergency budget this afternoon, many of our clients opt to leave any undistributed profits to accumulate in the company until the company is dissolved at whioch point they can be paid out as capital, subject to a current rate of 10%, assuming certain eligibility criteria are fulfilled.

PUMA