Reply to: Shoving some dividends into the missus

[TheCyclingProgrammer]

Lol? If this was the case you'd be admitting that it was only done for tax avoidance purposes, of course she gets to keep her shares - they're her shares to do what she wants with (she could sell them back to you at an agreed price or hold on to them for indefinite dividends and/or capital distribution)

Yup, if anything any kind of arrangement that means she has to give back the shares when you split up is likely to increase the risk of being caught by the settlements legislation as HMRC would try and argue that you retained an interest in the shares all along.

Regardless of the technicalities I think a risk of an investigation under settlements legislation is very low anyway so this would be the least of my concerns.

[pr1]

No.
You'd get back her shares as part of any settlement.
She's not going to want the complication anyway and S660 would apply (as she'd no longer be a spouse) so she'd have fun and games with the taxman if she kept the shares.

Lol? If this was the case you'd be admitting that it was only done for tax avoidance purposes, of course she gets to keep her shares - they're her shares to do what she wants with (she could sell them back to you at an agreed price or hold on to them for indefinite dividends and/or capital distribution)

[TheCyclingProgrammer]

No.
You'd get back her shares as part of any settlement.
She's not going to want the complication anyway and S660 would apply (as she'd no longer be a spouse) so she'd have fun and games with the taxman if she kept the shares.

S624 (S660 does not exist) would not suddenly apply. Firstly because it doesn't automatically apply just because you are unmarried and secondly because any investigation under s624 would be based on the point at which the settlement was made.

[Lance]

Bit with dividends "half of what you've got" is "half of what you're going to earn forever". I suppose in reality you'd close the company and start a new one?

No.
You'd get back her shares as part of any settlement.
She's not going to want the complication anyway and S660 would apply (as she'd no longer be a spouse) so she'd have fun and games with the taxman if she kept the shares.

[TheCyclingProgrammer]

You could claim Entrepreneur's Relief at the same time.

There would be no point as any capital distribution would be treated as income if you're closing the company and just starting a new one again.

[northernladuk]

You could claim Entrepreneur's Relief at the same time.

Eh???

[kaiser78]

Bit with dividends "half of what you've got" is "half of what you're going to earn forever". I suppose in reality you'd close the company and start a new one?

You could claim Entrepreneur's Relief at the same time.

[TheCyclingProgrammer]

But that has it's own challenges now with recent changes so not quite such a straight forward option.

True, though all of the recent changes are irrelevant if you distribute all of the company profits as a one-off dividend before closing down the company (which would of course mean your estranged spouse would get a windfall).

[northernladuk]

Bit with dividends "half of what you've got" is "half of what you're going to earn forever". I suppose in reality you'd close the company and start a new one?

But that has it's own challenges now with recent changes so not quite such a straight forward option.

[d000hg]

Bit with dividends "half of what you've got" is "half of what you're going to earn forever". I suppose in reality you'd close the company and start a new one?

[missinggreenfields]

I suppose on the risk-management front you may also have to weigh up the risk of divorce - presumably a £5-8k stipend you can retract more easily, whereas if they own shares you cannot just take them back?

Not something on my radar but it would genuinely be a sensible factor to at least consider should you get married as a contractor presumably? Maybe a separate thread if anyone is interested in "spouse-proofing"

<Brillo>She's going to take half of everything anyway so it makes no difference</Brillo>

[d000hg]

I suppose on the risk-management front you may also have to weigh up the risk of divorce - presumably a £5-8k stipend you can retract more easily, whereas if they own shares you cannot just take them back?

Not something on my radar but it would genuinely be a sensible factor to at least consider should you get married as a contractor presumably? Maybe a separate thread if anyone is interested in "spouse-proofing"

[TheCyclingProgrammer]

I asked my accountant about this and he said realistically they don't care. Because we are married our money is shared anyway. I pay her a dividend and she pays some of it into the one of my accounts which ALL of our household bills come out of...
My father does the same with his income from contracting, has been investigated (random check) and it wasn't flagged up so can't be that much of an issue.

I think your accountant is being realistic and I agree with him, generally. I'm not sure this kind of thing is really on HMRCs radar right now (their interest in anything income splitting/settlements related seems to have waned since the failed attempt at introducing a family business tax).

That said, I can see how a joint account could be open to attack.

Despite the Arctic case, if you actually read the settlements legislation and specifically the spouse exemption (s626 IIRC) one of the conditions is that the gift of shares is an "outright gift" and that is defined as a gift in which (paraphrasing) the donor of the shares does not retain any beneficial interest in the shares or any derived income (see legislation for exact wording).

This aspect of the spouse exemption wasn't really elaborated on in the case AFAICT but my own interpretation is that his means having some kind of actual beneficial interest in the shares or dividend income or some kind of conditions attached to the shares that directly benefit you (e.g. a right to some of the dividend income or that the shares must be returned to you).

I see what you're saying - if your spouse receives the money you are likely to indirectly benefit one way or the other so what's the difference? She can use that money on household bills or whatever. I don't think HMRC would follow that line of thinking because where would you draw the line?

But if the money goes into a joint bank account then half of those dividends are effectively half yours. You have a provable direct benefit in the derived income from the shares because they half belong to you.

This is somewhat different to her having full control over the money in her account and choosing what she spends it on.

Anyway, this is all hypothetical. Nobody can say for certain how vulnerable to attack paying dividends into a joint account would be and we probably won't find out unless HMRC get bored of ignoring massive scale corporate tax avoidance and decide to start having another go with the settlements legislation (can't see it personally).

[d000hg]

Because we are married our money is shared anyway.

Not as far as HMRC are concerned, sadly, otherwise you could pool your income and pay joint income tax.

[Snarf]

Why?

My spouse and I only have a joint account, no individual accounts.

I asked my accountant about this and he said realistically they don't care. Because we are married our money is shared anyway. I pay her a dividend and she pays some of it into the one of my accounts which ALL of our household bills come out of...
My father does the same with his income from contracting, has been investigated (random check) and it wasn't flagged up so can't be that much of an issue.