Income Shifting after a few years

[DirtyDog]

Could you not start a new limited company with your wife as a subscriber/shareholder?

Doing that would be no different from reducing all the retained profit in the company to nothing and then splitting in the same company (as suggested earlier).

Closing down the company so that you can open up a new one just to do the share split adds the setup and shutdown costs to the mix as well.

[psychocandy]

Unfortunately this is all I can be bothered adding to this thread but just think about two things. Firstly think about a different split between 60/40 and 75/25. This has been suggested by a number of accountants on here and also around the web that I have seen. I admit for everyone that says this there are an equal number that say 50/50 is fine. There is no law or precedence for it, shareholding has no basis on the amount of work done so it shouldn't really matter but I just think it feels better and if it makes little difference to the amount brought out it just seems like a better business setup than giving up half. TCP will be along in a minute to prove that there is zero justification but to me it just looks better.

Second is don't pay it in to a shared account and try to avoid it all coming back to you via transfers and whatever. If you gift shares to your wife and she gets the money then it is hers. Paid in to shared account that it becomes pretty obvious it is nothing more than a tax dodge. Personally I would say if you are getting in to an area that splits many of us at least do it properly.

My accountant has always advised to make the dividend payment as a separate payment which I do but that if both get paid into same shared account it makes no odds at all if thats the account you both use anyway.

[kevpuk]

Never previously given much thought to giving Mrs Kevpuk shares, but it might actually be worthwhile....
She earns circa. £35k pa in permie-dom, so I figure she has some headroom left prior to next tax threshold - gifting her, say, 20-25% shares could enable a dividend that maximises her available remaining 'allowance'? Of course, next step would be to supply her a phone and laptop from the company, so perhaps she should become Company Secretary or similar?

[Clare@InTouch]

Never previously given much thought to giving Mrs Kevpuk shares, but it might actually be worthwhile....
She earns circa. £35k pa in permie-dom, so I figure she has some headroom left prior to next tax threshold - gifting her, say, 20-25% shares could enable a dividend that maximises her available remaining 'allowance'? Of course, next step would be to supply her a phone and laptop from the company, so perhaps she should become Company Secretary or similar?

Issuing shares would be fine, just keep in mind that all future dividends would be paid in proportion.

A mobile phone can be provided to an employee, and a laptop as long as it's used mostly for business. Go careful if she's just the company secretary though, one could argue that's not an employment and therefore she's not entitled to such benefits.

[TheCyclingProgrammer]

Never previously given much thought to giving Mrs Kevpuk shares, but it might actually be worthwhile....
She earns circa. £35k pa in permie-dom, so I figure she has some headroom left prior to next tax threshold - gifting her, say, 20-25% shares could enable a dividend that maximises her available remaining 'allowance'? Of course, next step would be to supply her a phone and laptop from the company, so perhaps she should become Company Secretary or similar?

Start with how much you like to withdraw from the company on an annual basis and work from there.

Assuming you have taken the route of optimal salary + dividend combination to take you up to the higher tax rate threshold, you are probably taking approx. £30k (maybe slightly above but lets keep this simple) a year as a net dividend. That's £33.3k grossed up (remember you need to use the gross figure when determining your tax band).

A 20% shareholding would mean you could continue drawing the same amount of dividends with your wife receiving £6.6k (gross, £6k net) in dividends, which should take her up to, or just over the higher tax threshold.

You should make her an employee/director/company secretary to ensure she qualifies for ER on any capital distribution if you wind the company up in the future. You don't have to pay her a salary for being company secretary and indeed, it probably wouldn't make sense from a tax POV to do so.

If she is a director/employee/company secretary then you can *probably* give her a company provided phone using the one phone allowance, possibly claim use of home allowance (£4/week) and of course any business mileage, if any. Personally I think a laptop might be pushing it (company expenditure still needs to pass the "wholly and exclusively" test) so I'd run all of this past your accountant first if I were you!

Also, you don't have to justify giving her shares but I hope you'll be getting her to do some extra "admin" for you in return for the £6k tax free you'll be giving her each year!

[kevpuk]

Good tips, there ^^ TCP and C@IT - thanks
I think it makes sense to use wifety's allowance a little better, and she can - in turn - be my Agent-no-I-don't-want-to-accept-a-lower-rate-than-we-agreed first point of contact. That has to be worth the odd dividend share - no salary mind!

[northernladuk]

Good tips, there ^^ TCP and C@IT - thanks
I think it makes sense to use wifety's allowance a little better, and she can - in turn - be my Agent-no-I-don't-want-to-accept-a-lower-rate-than-we-agreed first point of contact. That has to be worth the odd dividend share - no salary mind!

You are quite obviously just using your wife as a tax mule to gain advantage from the company for no business reason whatsoever which means anything you do, however you might justify it to yourself, will be tax avoidance. Fishing around just to find some way to use your wife to make more money from the company isn't right.

Any accountant that advised you to go ahead with this carry on shouldn't be doing so IMO. They can tell you in a business situation this is allowable, in yours it isn't.

[TheCyclingProgrammer]

You are quite obviously just using your wife as a tax mule to gain advantage from the company for no business reason whatsoever which means anything you do, however you might justify it to yourself, will be tax avoidance.

Let's not pretend that most people on here don't do this for any other reason other than to save tax or that most accountants (including many of those who post on here) won't recommend this as an efficient means of doing so. A company doesn't need to have a "business reason" to give shares to somebody.

Unless you're implying that HMRC could challenge these arrangements under a general anti-avoidance rule, in which case why did they even bother with the "Family Business Tax"?

[ASB]

I wouldn't be overly surprised to see HMRC start to attack it under GAAR in the typical "one man band" type scenario to be honest.

I'm not suggesting people should avoid doing it, but utilisation of the oh's nil rate band can bring a decent saving.

It's an easy potential hit.

And no, it won't end up being viewed as "family business tax", a bit of spin will see to that. After all in the family business the spouse is often to be found behind the shop counter, going to the cash and carry etc.

[TheCyclingProgrammer]

I wouldn't be overly surprised to see HMRC start to attack it under GAAR in the typical "one man band" type scenario to be honest.

Maybe. You can't rule anything out and I'm sure accountants will start to change their advice and people will restructure their affairs accordingly if anything happens. Ultimately, it depends how high you think the risk is of any kind of retrospective taxation. The entire thing seems to have been off HMRC's radar for years now (although we all know they still don't like it).

Would be interested to hear any of the board's regular posting accountant's views on this though!