Income shifting - Is this still a problem?

[psychocandy]

Is there any reason why I cant split the shares in the company 50/50 with my wife and pay equal dividends?

My current accountant says that the split should take some consideration of how much work she actually does and that because of Income Shifting legislation the most he'd recommend is 75/25 split.

However, I've been doing some research and read about the Arctic case. Surely this nullifies that argument? Also, I cant see what the amount of work done has got to do with it - she'd be a shareholder not an employer.

With her part-time at the moment she earns about £12K so it would be advantageous to use up her lower limit tax allowance as well as mine.

Just wondered what everyone elses accountants suggest for this? Or is this going to another argument like the salary thing? LOL.

p.s. One drawback of doing 50/50 I guess is that if you kick the Mrs out she owns half the company now. Although, admitedly half the house/car/dog/cat etc.

[Craig@Clarity]

"Income shifting" doesn't apply to husband and wife cases where the shares are an outright gift and have the same rights to income and capital as per the Income Tax (Trading and Other Income) Act 2005 Part 5 Chapter 5 section 626

http://www.legislation.gov.uk/ukpga/...rt/5/chapter/5

If you are on the same starting salary as your wife of £12k, making the shareholding 50:50 would mean you both maximise your basic rate tax band

[psychocandy]

"Income shifting" doesn't apply to husband and wife cases where the shares are an outright gift and have the same rights to income and capital as per the Income Tax (Trading and Other Income) Act 2005 Part 5 Chapter 5 section 626

http://www.legislation.gov.uk/ukpga/...rt/5/chapter/5

If you are on the same starting salary as your wife of £12k, making the shareholding 50:50 would mean you both maximise your basic rate tax band

Cheers Craig. Thanks for the info.

[Wanderer]

My current accountant says that the split should take some consideration of how much work she actually does and that because of Income Shifting legislation the most he'd recommend is 75/25 split.

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?

[v8gaz]

Agree with everyone here. Your accountant is talking about how HMRC would like it to work, however PCG's excellent campaigning put the kybosh on this.

[Pondlife]

Agree with everyone here. Your accountant is talking about how HMRC would like it to work, however PCG's excellent campaigning put the kybosh on this.

This could only have been more shameless if you'd added the link to the PGC's site

[SueEllen]

Psychocandy is that your new accountant or the one you are changing from?

[northernladuk]

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

[Greg@CapitalCity]

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.

[psychocandy]

Psychocandy is that your new accountant or the one you are changing from?

Its my original one again.

Just lost faith now hence why I'm looking into all his decisions myself.