Income shifting - Is this still a problem?

[psychocandy]

The only other comment I can add here is regarding the 'outright gift'. Any dividends paid to your spouse MUST be paid into the spouses own bank account, with all financial benefits lying solely with the spouse (ie you cannot be seen to dip into his spouses bank account and take money for yourself). Tricky I know when households share a lot of costs between partners, but the main point is don't set this up with the intention of being able to get your hands on your wife's dividends - they are hers, not yours.

Good luck.

LOL. What about if all you've got is a joint bank account? Is that acceptable? Or is it better if she sets up her own account?

After all, theres no reason why she cant just bung it straight into joint account after recieving it, is there?

[psychocandy]

I agree with Craig. Your accountant's opinion is just plain wrong and will cost you a lot in tax. Perhaps your accountant would care to point out a test case where a 50/50 split was deemed to be unlawful but a 25/75 split would have been acceptable?

The fundamental truth is that a shareholder receives dividends and they don't have to do any work to justify this. Salary splits may be be challenged but the amount is small and you aren't paying her any salary anyway.

I think the only caveat (as per Arctic) is that they have to be "ordinary shares" which give the owner a say in running the company rather than just a gift of income.

Who's your accountant?

Not fair to name names but hes not one of the big national contractor ones. A local one who claims to specialise in contractors.

[Fred Bloggs]

The only other comment I can add here is regarding the 'outright gift'. Any dividends paid to your spouse MUST be paid into the spouses own bank account, with all financial benefits lying solely with the spouse (ie you cannot be seen to dip into his spouses bank account and take money for yourself). Tricky I know when households share a lot of costs between partners, but the main point is don't set this up with the intention of being able to get your hands on your wife's dividends - they are hers, not yours.

Good luck.

I have heard this before. Do you have a reference why this is important? FWIW, me and Mrs Bloggs have always done this since Mrs Bloggs has been a shareholder since he Ltd Co was started up. However, it was by chance rather than planning that her divis ended up in her account rather than the joint account where my divis end up.

[psychocandy]

I agree with Craig. Your accountant's opinion is just plain wrong and will cost you a lot in tax. Perhaps your accountant would care to point out a test case where a 50/50 split was deemed to be unlawful but a 25/75 split would have been acceptable?

The fundamental truth is that a shareholder receives dividends and they don't have to do any work to justify this. Salary splits may be be challenged but the amount is small and you aren't paying her any salary anyway.

I think the only caveat (as per Arctic) is that they have to be "ordinary shares" which give the owner a say in running the company rather than just a gift of income.

Who's your accountant?

I even queried this at the time and even mentioned Arctic but he said it doesnt appy.

His recommendation is that it couldnt be 50/50 because it cant be argued that she does anywhere near that amount of work towards the income. He reckons 25% was pushing it.

But then shes a shareholder not an employee. If I've got BT shares no matter how many it doesnt mean I've got go and install a few phone lines, does it?

[psychocandy]

I presume you have worked up a sturdy warchest before you are emptying your companies account?

Plan was to empty it up until I hit the higher tax rate and stick in savings account then leave the rest in there. Can get a decent rate on a personal savings account but not yet found a decent business savings account....

Then again it might be best to leave it there if I can find a decent bus savings account....

[Fred Bloggs]

I even queried this at the time and even mentioned Arctic but he said it doesnt appy.

His recommendation is that it couldnt be 50/50 because it cant be argued that she does anywhere near that amount of work towards the income. He reckons 25% was pushing it.

But then shes a shareholder not an employee. If I've got BT shares no matter how many it doesnt mean I've got go and install a few phone lines, does it?

He is wrong about Arctic and he's wrong about working for the divis as well. I don't work for my Tesco divis.

[SueEllen]

After all, theres no reason why she cant just bung it straight into joint account after recieving it, is there?

We discussed this in length before on here.

To avoid any future problems with HMRC the simple solution is to get the spouse to open an account with the same bank as the joint one in her name solely.

You can then give the dividends out and she can then transfer to the joint account. (That's if she wants to.) The money will be in the joint account within 5 minutes if you are with a decent bank.

BTW I think you are going to be looking for yet another accountant as it's clearly one who doesn't keep up to date.

[psychocandy]

Hmmm. This tax year I got about £12K in PILON payments and wife will earn about £12K so 50/50 split would be fine. I dont pay myself salary because of £12K already paid in previous employment.

If I left it at 75/25, then basically, I can earn (talking about grossed up dividends here with CT paid etc) another £30,500 (35000+7475-12000). since I'm taking 75% and wife 25% that would mean I could take £40,167 (30,500 for me, 10166 for Mrs) before higher tax.

Any more would push me personally over. However, if its 50/50, I could take £30,500 and she could take £30,500, so I can get £61,000 out at basic rate.

Am I right here?

Makes a fair difference cos if I decided to take out 61K anyway, then using current setup (45750 for me 15250 for Mrs) personally I go 15700 over into higher rate. 22.5%(?) on that = £3500+ in extra tax. All thanks to possibly dodgy advice from accountant !!!

And I was just about to declare a dividend at the 75/25 split? I dont suppose I can go back retrospectively and change that in the future to 50/50?

I think I better hold on to the money for now and get a new accountant to sort out my share situation before I start drawing dividends...

[psychocandy]

We discussed this in length before on here.

To avoid any future problems with HMRC the simple solution is to get the spouse to open an account with the same bank as the joint one in her name solely.

You can then give the dividends out and she can then transfer to the joint account. (That's if she wants to.) The money will be in the joint account within 5 minutes if you are with a decent bank.

BTW I think you are going to be looking for yet another accountant as it's clearly one who doesn't keep up to date.

This is the old accountant still. Yet another example of a problem.....

[DaveB]

Hmmm. This tax year I got about £12K in PILON payments and wife will earn about £12K so 50/50 split would be fine. I dont pay myself salary because of £12K already paid in previous employment.

If I left it at 75/25, then basically, I can earn (talking about grossed up dividends here with CT paid etc) another £30,500 (35000+7475-12000). since I'm taking 75% and wife 25% that would mean I could take £40,167 (30,500 for me, 10166 for Mrs) before higher tax.

Any more would push me personally over. However, if its 50/50, I could take £30,500 and she could take £30,500, so I can get £61,000 out at basic rate.

Am I right here?

Makes a fair difference cos if I decided to take out 61K anyway, then using current setup (45750 for me 15250 for Mrs) personally I go 15700 over into higher rate. 22.5%(?) on that = £3500+ in extra tax. All thanks to possibly dodgy advice from accountant !!!

And I was just about to declare a dividend at the 75/25 split? I dont suppose I can go back retrospectively and change that in the future to 50/50?

I think I better hold on to the money for now and get a new accountant to sort out my share situation before I start drawing dividends...

Couple of things. Generally speaking, unless there are special circumstances, PILON payments up to £30k can safely be regarded as Tax Free. There is no need to account for them as taxable income. (This is according to the solicitor I used to negotiate my own redundancy agreement a few months back).

You can always issue an additional share to your other half (as a gift) to change the shareholdings to a 50/50 split. Perfectly legal provided you fill out the right forms and inform Companies house.