Children as shareholders

[philip@wellwoodhoyle]

True, but as you say, pretty thin and likely to be overthrown.

The grandparent thing definitely worked - in my previous job as a tax manager, we did it for loads of clients and it was given the green light by tax counsel. It also stood up to HMRC enquiry in a couple of cases that were investigated. The key is to get it set up properly, and to do that you need the tax experts - we used a tax barrister. As I say, I am rusty as we've not had one to do for a couple of years, so I don't know if there have been any recent changes to prevent it being done these days. Also, I can't remember why, but some schemes were set up via a trust (and A&M trust if I remember rightly) and some weren't. Now I have my own practice, I don't get involved directly with them anymore - we just passed the clients on to the barrister and left them to it. I don't think S660 would affect it directly, but what I worry more about is what Govt will do to change the law if HMRC lose the Arctic case.

[DaveB]

True, but as you say, pretty thin and likely to be overthrown.

The settlement bit is at the heart of Arctic of course - but bearing in mind Diana Jones paid for her share at the same price as Geoff did and has done real, fee-earning work for Arctic in her time, that is apparently not too strong a defence either.

Rumour has is it the Arctic appeal won't be until next year now. One day,we'll know the answer!

Not a rumour according the the PCG front page. Postponed until after Jan 31st.

[malvolio]

True, but as you say, pretty thin and likely to be overthrown.

The settlement bit is at the heart of Arctic of course - but bearing in mind Diana Jones paid for her share at the same price as Geoff did and has done real, fee-earning work for Arctic in her time, that is apparently not too strong a defence either.

Rumour has is it the Arctic appeal won't be until next year now. One day,we'll know the answer!

[ASB]

It will be caught by S660.

That is by no means certain. There is no connected persons rule in S660. The question is whether there was a settlement and whether income is diverted and flows back to the benefit of the settlor.

If the grandparents had a habit of paying school fees or similar anyway then you may be OK. Also one could argue that payment of school fees is not to the benefit of the settlor (very thin). Further WHA was suggesting subscribing for shares on formation - so there is also a "there was never any settlement" argument".

[malvolio]

It will be caught by S660. The Arctic case is about its application between spouses. The connected persons rule, which covers parents, siblings and children who do not actively contribute, has never been under dispute and was the original purpose of the legislation.

Whatever happens, Arctic will not kill S660a across the board, merely the latest (and rather optimistic) re-interpretation of it.

[philip@wellwoodhoyle]

Maybe too late now the company is presumably trading, but there is a possibility for a new company formation scenario. You get the childrens' grandparents to subscribe for shares as well as yourself and/or spouse. Dividends can then be paid to grandparents, who in turn can pay for children's education or give money directly to children. Obviously only works if grandparents aren't HR taxpayers, you do need to trust them and you need to think about their wills as well, so the shares end up with the children when they die. You can go further and get the grandparents to transfer their shares into a trust for the children, so the dividends go into the trust and school fees come out of the trust. This is very a specialist area - we pass on clients wanting to do this to solicitors specialising in trusts. I'm not completely up to date either as it is a couple of years since our last one as we're all waiting for the S660 issues to be resolved, the rules may have changed recently or may be likely to change once the s660 case is settled, but if the amounts of money are worthwhile, it is something to explore - probably best to seek out a specialist.

[ASB]

Thanks to all.

My Children are only 3,6 and 11 so I guess there is little point in doing that. I thougt there must be some reason why it couldn't be done, didn't think that I was the first person to think of the idea.

I assume the same goes for making children employees, one other thought I had was can I pay for school fees through the business and claim for it as training? I suspect this is not possible if the training is not for an employee or not related to the business ?

Thanks
Colin

If the children actually work then you can pay them. But since they are under 13 I don't think they can legally work.

If an employee arranges school fees to be paid by an employer it is assessed to the employee and subject to class 1 nics. If it is the employer who arranges it then it is asessed to the employee and charged Class 1A nics.

Whether either of these result in a worthwhile saving your accountant should be able to advise (but I don't expect it does).

[Cipenman]

Other options ?

Thanks to all.

My Children are only 3,6 and 11 so I guess there is little point in doing that. I thougt there must be some reason why it couldn't be done, didn't think that I was the first person to think of the idea.

I assume the same goes for making children employees, one other thought I had was can I pay for school fees through the business and claim for it as training? I suspect this is not possible if the training is not for an employee or not related to the business ?

Thanks
Colin

[ASB]

If your child receives dividends in excess of £100, you pay the tax. Same applies for the interest on cash savings as well.

It's not quite that straight forward.

for minor children each parent can give each child assets which generate up to £100. Once over £100 ALL the income is taxed to the donor. Non parental gifts don't count - except that they will for part of the childs taxable income.

If they are not minor children it is a potentially viable strategy to pay *their* university bills etc. Just make absolutely sure that the bills are in their name and no way does any of it flow back to the household. If the IR win the upcoming Jones appeal or there is any ageement to buy back the shares at some date in the future expect problems with S660 anyway.

[malvolio]

It is also covered by S660a - the Arctic case is about its applicability to husband/wife teams, but otherwise remains unchanged, as per the original Hawkins case. Giving shares to children to minimise tax is expressly forbidden unless you treat their income as your own for tax purposes.

[Lucifer Box]

If your child receives dividends in excess of £100, you pay the tax. Same applies for the interest on cash savings as well.

[DaveB]

You *can* but depending on their age it thows up all sorts of issues around holding shares in trust, trustees administration of those shares and where the money actually ends up.

You can have as many shareholders as you want, just make sure the money doesn't end up coming back to you through joint bank accounts, bank trasnfers etc.

[Cipenman]

Can I make my Children shareholders in my company so that I can be more tax efficient with my dividend distribution ?

Thanks for any advise
Colin