S660 implications shortly after a share transfer has taken place

[DigitalUser]

I'm due to get married in the near future and have a large amount of profit (> 90k) residing in the company. Once I get married I plan to split my company shareholding with a 50/50 split. If I were to declare a dividend shortly after the share transfer has taken place (say, a 40k dividend per person less than 5 days after the transfer has taken place), are there any grounds which indicate that the transfer is a 'wholly or substantially' right to income? This is based off http://www.nixonwilliams.com/images/...20Shifting.pdf

N.B NW are my accountants, I have spoken to my accountant @ NW regarding this who said it depends on how HMRC view the timing of the share transfer, I have PCG+ membership and I've searched the forums, so I'm looking to get the opinions of others on this forum.

Based on the flow chart on page 3 of the PDF, it appears that spouses have an exemption to this rule. We are and will be living together when we get married. The money will be going into separate bank accounts, and my spouse will get ordinary shares with full voting rights.

[TheFaQQer]

I bloody hope not - I paid a dividend about a week after the share split with my wife.

[DigitalUser]

I bloody hope not - I paid a dividend about a week after the share split with my wife.

That's pretty much what I will be banking on (given the size and timing of the planned dividend), but from the NW document it's not clear whether a spousal exemption could be challenged.

[TheFaQQer]

I'd ask your accountant (or whoever wrote the document for them) on what basis have they come to that conclusion - is there any case law which indicates one way or the other?

At the end of the day, it's your company and your risk whatever they tell you - remember that if you have PCG+ insurance they will fund your defence if you have any tax issue, so if you think this is risky then make sure you have cover to fight your corner.

My accountant didn't raise any issue about the timing of the dividend - I didn't ask them if there would be any issues over timing, it must be said, though.

[Craig@Clarity]

Based on the info above, it's more than likely that the transaction will be caught by the settlements legislation in that it's:

1. An arrangement
2. You have a retained interest
3. It's bounteous

The next test to get you out of the legislation would be:

1. Is it a spousal gift AND
2. Is more than just a right to income i.e. full rights to income and capital on winding up etc.

If that is true, the settlements legislation doesn't apply. Obviously, it's slightly more technical than that but in a nutshell you could sum it up as above.

However, take specific and specialist advice from NW on structuring the shares after you get married. Do it incorrectly and you could come a cropper!

Hope this helps

[TheFaQQer]

Based on the info above, it's more than likely that the transaction will be caught by the settlements legislation in that it's:

1. An arrangement
2. You have a retained interest
3. It's bounteous

The next test to get you out of the legislation would be:

1. Is it a spousal gift AND
2. Is more than just a right to income i.e. full rights to income and capital on winding up etc.

If that is true, the settlements legislation doesn't apply. Obviously, it's slightly more technical than that but in a nutshell you could sum it up as above.

However, take specific and specialist advice from NW on structuring the shares after you get married. Do it incorrectly and you could come a cropper!

Hope this helps

That's pretty much what your boss told me (apart from the bit about talking to NW)

[Craig@Clarity]

That's pretty much what your boss told me (apart from the bit about talking to NW)

[Craig at Nixon Williams]

In reality, if you are married and living together then it will be covered by the spousal exemption.

The reason for our cautionary note in this document is because the situation mentioned has not actually been tested in court – the situation is very different from Arctic Systems where shares were gifted at incorporation. We do not know how this would go if you did go to court with HMRC but given the situation is different; there is scope for the courts to move away from the previously set precedent.

This advice was taken from Accountax, who defended the Arctic Systems case when it went to court.

Hope this helps!
Craig

[DigitalUser]

Based on the info above, it's more than likely that the transaction will be caught by the settlements legislation in that it's:

1. An arrangement
2. You have a retained interest
3. It's bounteous

The next test to get you out of the legislation would be:

1. Is it a spousal gift AND
2. Is more than just a right to income i.e. full rights to income and capital on winding up etc.

If that is true, the settlements legislation doesn't apply. Obviously, it's slightly more technical than that but in a nutshell you could sum it up as above.

However, take specific and specialist advice from NW on structuring the shares after you get married. Do it incorrectly and you could come a cropper!

Hope this helps

As I see it, it is

- A gift (how that money is used will be outside my control, and there is no expectation it will be gifted back to me and/or used by me)
- Outside my control, in the sense that it will be deposited into a separate bank account (and never enter land in a shared bank account)
- More than a right to income, given the shares will be ordinary, carry full voting rights, have full rights to income and capital on winding

I've discussed these things with my accountant a while ago and he pretty much said the same thing, so it's positive there appears to be (some) consensus about the application of this legislation.

My fear, though, still resides about if it is viewed as bounteous (which, from a neutral perspective, it is), it is an arrangement (which, from a neutral perspective, it is) and whether I have a retained interest (which I would do, as the money would be used to facilitate the purchase of things jointly).

[DigitalUser]

In reality, if you are married and living together then it will be covered by the spousal exemption.

The reason for our cautionary note in this document is because the situation mentioned has not actually been tested in court – the situation is very different from Arctic Systems where shares were gifted at incorporation. We do not know how this would go if you did go to court with HMRC but given the situation is different; there is scope for the courts to move away from the previously set precedent.

This advice was taken from Accountax, who defended the Arctic Systems case when it went to court.

Hope this helps!
Craig