Adding Wife as Shareholder in an active company

[triwhdxk]

I have been 100% shareholder for my limited company for the past 5 years and Director also. My wife has been secretary since the beginning when I formed the company. She is not a Director or an employee at the moment. I never paid her any salary for the past 5 years. She is working part time somewhere else for past 5 years but on a salary which does not incur much tax etc.

Also I have never taken more money out of my business account which will incur more tax for myself so have been within 40k-45K range. I have quite surplus cash in my bank account.

I want to change the shareholding structure so that it's 50:50 now. Don't want her to be the Director or employee of the company.

reading the forums I think there is no issue in giving her the ordinary shares as gift. below is my accountant response to this. Should I change the accountant or liquidate the company and than open new one with correct shareholding?

-----------------------------
Ideally at the point in which you formed your company the shares should have been transferred. At this time the company was in effect worth nothing, so 50% of the company could have been transferred to your wife and shares issued. Since then, you have generated income and the company has value, so if investigated by HMRC they may view this transfer of shares as income shifting.

HMRC may try and argue the shares that are being transferred are indeed a right to income because there is the expectation to receive the dividends if the underlying reasoning behind the transfer to ensure the main shareholder remains under the basic rate.
---------------------------------------

[Waldorf]

My accountant has this guide http://www.nixonwilliams.com/images/...20Shifting.pdf

Transfers made when the company has high reserves
If you make a share transfer and the company has high reserves (or reasonable certain expectations of high profits) at the time the transfer takes place then the shares transferred could be seen to be ‘wholly or substantially’ a right to income due to the fact that there is an underlying expectation to receive large amounts of dividends from the company’s reserves.

These factors should all be taken into account if you are thinking of making a gift of shares to your spouse or civic partner. You should also take into account HMRC’s statement made shortly after the House of Lords decision taken from ‘Arctic Systems Ltd (Jones v Garnett): HMRC guidance’ on HMRC’s website:

‘We have been keeping open some similar cases to that in Jones v Garnett whilst we waited for the decision in the House of Lords. We will now review all these cases and will seek to settle them in line with the Jones v Garnett decision if appropriate. Not every case will be exactly the same as Jones v Garnett. We will consider each case on the basis of its individual facts, but unless there are any additional factors which might cause us to take a different view, we expect that most cases where the settled property comprises:

• ordinary shares in a company, or an ordinary (ie unlimited) interest in a partnership, will be within the exemption for outright gifts between spouses.’

[Sausage Surprise]

Just do it - most do.

[northernladuk]

Personally I would say go 75/25 so it looks like you are attempting to reflect your and her status in the situation but many argue there is no need.

[doomage]

My accountants (PlanIT) set up a 60/40 split for me & the wife last month, my ltd has been trading for 4 years. There was no indication from them that there are any problems with this.

The only downside so far is the missus has not been appropriately grateful for this gift (in my opinion. )

[JamJarST]

I have been 100% shareholder for my limited company for the past 5 years and Director also. My wife has been secretary since the beginning when I formed the company. She is not a Director or an employee at the moment. I never paid her any salary for the past 5 years. She is working part time somewhere else for past 5 years but on a salary which does not incur much tax etc.

Also I have never taken more money out of my business account which will incur more tax for myself so have been within 40k-45K range. I have quite surplus cash in my bank account.

I want to change the shareholding structure so that it's 50:50 now. Don't want her to be the Director or employee of the company.

reading the forums I think there is no issue in giving her the ordinary shares as gift. below is my accountant response to this. Should I change the accountant or liquidate the company and than open new one with correct shareholding?

-----------------------------
Ideally at the point in which you formed your company the shares should have been transferred. At this time the company was in effect worth nothing, so 50% of the company could have been transferred to your wife and shares issued. Since then, you have generated income and the company has value, so if investigated by HMRC they may view this transfer of shares as income shifting.

HMRC may try and argue the shares that are being transferred are indeed a right to income because there is the expectation to receive the dividends if the underlying reasoning behind the transfer to ensure the main shareholder remains under the basic rate.
---------------------------------------

Your accountant has given you advice (correct advice it would appear) that you don't agree with so your solution is to change accountants???

[northernladuk]

My accountants (PlanIT) set up a 60/40 split for me & the wife last month, my ltd has been trading for 4 years. There was no indication from them that there are any problems with this.

The only downside so far is the missus has not been appropriately grateful for this gift (in my opinion. )

You could detail the deliverables in a contract but guess this would be hardest bit of negotiating any contractor would have to endure!

[psychocandy]

I think Waldorf may have a point. IMHO it does look a bit iffy if the company already has high reserves.

One thing I'm interested in - why didnt you do this at the beginning 5 years ago? Assuming your Mrs wasnt earning much back then mind. You've missed a good few years of being able to use up her lower tax bracket now.

For instance, I'm the same, Mrs works part-time, but with the help of dividends we've both earned pretty much right up to the 42K limit last year. So no need for 40% tax (or losing child benefit next year).

[triwhdxk]

I think Waldorf may have a point. IMHO it does look a bit iffy if the company already has high reserves.

One thing I'm interested in - why didnt you do this at the beginning 5 years ago? Assuming your Mrs wasnt earning much back then mind. You've missed a good few years of being able to use up her lower tax bracket now.

For instance, I'm the same, Mrs works part-time, but with the help of dividends we've both earned pretty much right up to the 42K limit last year. So no need for 40% tax (or losing child benefit next year).

i Know i have missed. but i really did not needed that much cash.

so liquidating and opening another one is better or changing the shareholding.