Correct form to issue new share to wife?

[Fred Bloggs]

Presently, myself and wife hold shares 3 to 2. Since the Arctic Systems case we have now had a change of government so I think a similar attack from HMRC is now a remote possibility. I have looked at companies house but I cannot see the form that is required to issue another share to my wife, making us 3 to 3 (IE 50/50%) share holders. This is attractive as we will be able to extract a bit more in dividends and still stay under the 40% tax band. Which form do we need? Thanks.

[Robot]

Presently, myself and wife hold shares 3 to 2. Since the Arctic Systems case we have now had a change of government so I think a similar attack from HMRC is now a remote possibility. I have looked at companies house but I cannot see the form that is required to issue another share to my wife, making us 3 to 3 (IE 50/50%) share holders. This is attractive as we will be able to extract a bit more in dividends and still stay under the 40% tax band. Which form do we need? Thanks.

SH01 - Return of allotment of shares - you can download it from Companies House or you might be able to submit it on-line via their website.

Robot

[Fred Bloggs]

SH01 - Return of allotment of shares - you can download it from Companies House or you might be able to submit it on-line via their website.

Robot

Cripes, I read "return" as meaning you "return the shares". Thanks, I'll try not to be quite so dumb!

[BolshieBastard]

Presently, myself and wife hold shares 3 to 2. Since the Arctic Systems case we have now had a change of government so I think a similar attack from HMRC is now a remote possibility. I have looked at companies house but I cannot see the form that is required to issue another share to my wife, making us 3 to 3 (IE 50/50%) share holders. This is attractive as we will be able to extract a bit more in dividends and still stay under the 40% tax band. Which form do we need? Thanks.

I may be wrong and stand to be corrected but I dont think you can just issue or 'gift' another share to your missus. I think she has to buy it otherwise there are other financial implications.

[Wanderer]

I may be wrong and stand to be corrected but I dont think you can just issue or 'gift' another share to your missus. I think she has to buy it otherwise there are other financial implications.

I'm trying to figure out that one too. Can anyone comment on these two scenarios:

1. A person forms a limited company with himself and his wife as directors and holding one share each. He then becomes the sole fee earner and he pays himself and his wife a dividend.

2. A person forms a limited company as the sole director and shareholder holding 1 share. the company trades for 1 year and at the end of the year, the company has retained profits of 20,000 pounds. The director then appoints his wife as a director of the company and issues her with one share. The company then declares a dividend and spits it between the two shareholders.

Scenario 1 is a legitimate way to run a family business.

What about scenario 2? There is a lot written about it that pre-dates the Arctic Systems case but what is the situation now? Can HMRC challenge it or was defeated as part of the Arctic Systems case?

[Wanderer]

Ahhh, I think I have found the answer:

an arrangement by which one spouse uses a private company as a tax-efficient vehicle for distributing to the other income which its business generates is likely to constitute a "settlement" on the other spouse within the meaning of section 660G(1) of the 1988 Act. But so long as the shares from which that income arises are ordinary shares, and not shares carrying contractual rights which are restricted wholly or substantially to a right to income, the settlement will fall within the exception created by section 660A(6)

The judgement also states that it made no difference if the spouse brought the shares (ie at the time the company was incorporated) or was gifted the shares (presumably at a later date). It was still a settlement under S660A because the company director would not allowed a stranger to purchase this share. However, the judgement also found that the shares gifted were "an ordinary share conferring a right to vote, to participate in the distribution of assets on a winding up, to block a special resolution, to complain under section 459 of the Companies Act 1985." and therefore not "wholly or substantially a right to income" which allowed it to fall under the exemption for gifts between a husband and wife.

That last bit is the crucial part. If the shares were a preference share (which carried no rights other than the right to dividends) then it would have been substantially a "right to income" and therefore caught by the settlements legislation.

Bottom line is that a person can gift ordinary shares to their spouse either at incorporation time or some time in the future and it's covered by the exemption for gifts between spouses in S660.

That's how it reads to me, I'm not a lawyer or accountant and you should take professional advice before proceeding.

[Fred Bloggs]

Thanks for the comments. Originally ages ago, we set the Ltd Co. up with one ordinary share each. But when Arctic Systems case first surfaced we thought it best reflects the duties of me and the wife to have the split as 3 to 2. I can't remember which form we used to do this transaction and in fact I think you can do this on line now, but we want to issue one more share to again make the Ltd Co 50/50%, 3 shares each. I think that since Arctic Systems won, we are just fine doing this by issuing 1 more share. I'll probably have to check with the accountant now that you've raised questions about it. Thanks.