Income Shifting

[Clare@InTouch]

Is that it?

Not really relevant to the issue of shares between non-spouses though.

The question was whether HMRC are still taking on Settlements cases and winning. The answer, judging by that case, is Yes. The Settlements legislation can't be assumed to be dead by any means.

AtW also rightly mentions IHT implications for selling an asset to a non-spouse at undervalue.

[malvolio]

OK, sanity check is called for, I think.

Married people can have shares in their company regardless of who earns the money, without any tax implications other than normal personal PAYE on the earned/dividend income. Nor does it matter how the shares were acquired.

If you want belt and braces, ensure such shares carry equal rights wrt voting and proportional earnings.

Giving (or pretending to sell) shares to a connected person comes under S660 (it's what it's meant to stop). A connected person buying shares at full market value may have a defence if there is a solid business reason for it, but it is not to be recommended as a strategy.

Unmarried people not of the same family are not connected persons (the clue is in the name) so there are no restrictions on share ownership. However, to avoid accusations of tax avoidance (not that there's anything wrong with avoidance but let's not give Hector ammunition), the shares should be paid for at market value.

Market value is whatever the company decides it is: 10 shares in a company with £100k of assets may be worth £100 each or four pence. However, given your legal duty as a director to earn the most you can for your shareholders, and to avoid accusations of malpractice, it's probably better to charge the former rather than the latter, or at least something a bit closer to it.

And if you want chapter and verse, read the PCG guide on the subject. You are, of course, a member already...

HTH.

[TheCyclingProgrammer]

If what you are saying is correct (that she wouldn't be giving you anything back and that there is absolutely no condition attached) then perhaps there is no retained interest. You would still be caught by the legislation because of the fact that you are unmarried and that the share transfer would be bounteous.

Craig

I can't find the word "bounteous" anywhere in the legislation. Which section should I be looking at?

[northernladuk]

Some interesting comments in this document defining section 624.. Page 1 and 2 are the relevant bit I believe...

http://www.londontrust.net/filedepot...TTOIA_2005.pdf

[TheCyclingProgrammer]

OK, sanity check is called for, I think.

Married people can have shares in their company regardless of who earns the money, without any tax implications other than normal personal PAYE on the earned/dividend income. Nor does it matter how the shares were acquired.

If you want belt and braces, ensure such shares carry equal rights wrt voting and proportional earnings.

Giving (or pretending to sell) shares to a connected person comes under S660 (it's what it's meant to stop). A connected person buying shares at full market value may have a defence if there is a solid business reason for it, but it is not to be recommended as a strategy.

Unmarried people not of the same family are not connected persons (the clue is in the name) so there are no restrictions on share ownership. However, to avoid accusations of tax avoidance (not that there's anything wrong with avoidance but let's not give Hector ammunition), the shares should be paid for at market value.

Market value is whatever the company decides it is: 10 shares in a company with £100k of assets may be worth £100 each or four pence. However, given your legal duty as a director to earn the most you can for your shareholders, and to avoid accusations of malpractice, it's probably better to charge the former rather than the latter, or at least something a bit closer to it.

And if you want chapter and verse, read the PCG guide on the subject. You are, of course, a member already...

HTH.

malvolio - thanks for the response. I'm with you, all the way up until your point about market value and earning the most I can for my shareholders. I'm not creating new shares in my company, I'm transferring my own shares. The company value has not be diluted in anyway. Is this not a concern for me rather than the company?

To be honest, I entered this thread worried about settlements legislation and seem mostly convinced that in normal circumstances that it does not apply to our situation.

However, I am now concerned about the valuation of the shares and what affects that could have. Something I have put to my accountant.

[malvolio]

I can't find the word "bounteous" anywhere in the legislation. Which section should I be looking at?

"Bounteous" in this context is(very roughly) someone gaining income for no perceived effort. If the shares are bought at a fair value from the purchaser's own income there is no bounty; it's a simple business transaction. Giving the shares for free may be bounteous, unless you can prove they are a gift or reward of some kind for services rendered (ahem...). Personally I would say that looking after the kids so you can go to work qualifies, but I'm not an accountant.

[Clare@InTouch]

I can't find the word "bounteous" anywhere in the legislation. Which section should I be looking at?

You'll find it in the HMRC Guidance here (I haven't traced it to the source legislation): TSEM4200 - Settlements legislation: settlor retains an interest

[TheCyclingProgrammer]

You'll find it in the HMRC Guidance here (I haven't traced it to the source legislation): TSEM4200 - Settlements legislation: settlor retains an interest

Thanks. I've read through that twice and HS270 and unfortunately not one of the examples HMRC provide match my situation. It's becoming rapidly clear that if we were already married then this wouldn't be a problem.

As malvolio said, whether or not a transfer of shares could be considered "bounteous" seems open to intepretation to me. Do HMRC clearly define this concept anywhere?

This is the best I could find:

"Settlement must include an element of bounty, as decided in the tax case of CIR v Plummer (54 TC 1). Bounty is the provision of value without any corresponding quid pro quo, usually a gift or a transfer at less than full value."

Source:
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem4110.htm

[northernladuk]

There is a definition in the pdf I linked which backs up Mal's comment but isn't an official statement.

[TheCyclingProgrammer]

Out of interest, should, as a result of hearing back from my accountant (and a second one who I am speaking to to get a second opinion), I decide that all of this is not worth any further risk or hassle, how would I go about reversing all of this?

Should I just buy the shares back from my partner for the original price and take a full shareholding back in the company and take the chance that we won't be investigated for the dividends paid out over the last year?