Questions on Class-B shares

[retyfraser]

http://forums.contractoruk.com/accou...-b-shares.html


I've read the above thread and am trying to do something similar - like add my wife ( who is unemployed now) to my company as a Class-B share holder and she continues to be ( I have no plans to switch her to Class A next year or ever !). We do not have any more shareholders and i am the director.

And i am doing it this year - cause, I've exhausted my 30k and now am (because I can) adding my wife just so that, I can run it till the end of this year. Is this what is called as Dividend Waiver. But from next year, I wouldn't do this waiver and will declare equally ( even though she'll continue to be a ClassB shareholder)

Whats the experience in general ?

[northernladuk]

Didn't that thread advise that it shouldn't be done? Don't mess with alphabet shares and your wife. Do it properly or not at all.

What you are describing is taking tax avoidance one step too far.

[TheFaQQer]

Alphabet shares, if executed properly, are fine. I know of one small business which has four shareholders when they set up, with one class A share each. They then have a class B, class C, class D and class E share for each person so they can pay dividends at a different rate.

With the new dividend tax, there is nothing to prevent you issuing an alphabet share to anyone else and paying them up to the tax free dividend threshold of £5k regardless of their income tax band. This is NOT a preference share, which is where you can hit trouble, nor is it a dividend waiver.

Personally, I wouldn't risk preference shares or a dividend waiver - as a starter, look at the cases involved with dividend waivers to see where people have had issues.

If your intention is to pay equal dividends each year on class A and class B shares, then I would take the hit this year and not bother with the preference shares and / or a dividend waiver.

[northernladuk]

Alphabet shares, if executed properly, are fine. I know of one small business which has four shareholders when they set up, with one class A share each. They then have a class B, class C, class D and class E share for each person so they can pay dividends at a different rate.

Indeed but giving them away as brute force attempt to avoid tax isnt very clever executed right or not... But you did say that at the end. I can't remember any of our accountants advocating this is the past.

[TheFaQQer]

Indeed but giving them away as brute force attempt to avoid tax isnt very clever executed right or not... But you did say that at the end. I can't remember any of our accountants advocating this is the past.

Last year, after the Autumn Statement, I had a discussion with a well-regarded accountant about alphabet shares in response to the dividend tax. It was his recommendation / thought / opinion that there would be no issue with creating another alphabet share which paid £5k in dividend income (or £5k minus other dividend income) to a spouse, and if they were a higher rate tax payer already then the new tax would be better for them than the old regime.

[northernladuk]

Last year, after the Autumn Statement, I had a discussion with a well-regarded accountant about alphabet shares in response to the dividend tax. It was his recommendation / thought / opinion that there would be no issue with creating another alphabet share which paid £5k in dividend income (or £5k minus other dividend income) to a spouse, and if they were a higher rate tax payer already then the new tax would be better for them than the old regime.

Going forward possibly but that's not what the OP was attempting to do. But guess we are on the same page.

[garnet]

Going forward possibly but that's not what the OP was attempting to do. But guess we are on the same page.

It is not illegal to try to minimize the tax paid. Not avoid paying tax. Also issuing different class shares is not perfectly OK.
All the above applies for now and also for the new tax year.
I don't see why do you try to create panic here.

[WordIsBond]

It is not illegal to try to minimize the tax paid. Not avoid paying tax. Also issuing different class shares is not perfectly OK.
All the above applies for now and also for the new tax year.
I don't see why do you try to create panic here.

Seeing as you've advocated elsewhere in the forum actions which are clearly tax evasion and fall foul of income-splitting rules, I think it is safe to say that either you don't know what you are talking about, or you are purposely trying to get people to do things that will get them in trouble. I'll assume the former, but either is pretty damning.