splitting company shares

[XLMonkey]

ah, now I see what you mean. That could sting a bit !!

[ASB]

Erm, could be wrong, but think that was what I just said:

I failed to make my point. A regular occurance . The real point was 3 because it is potentially expensive.

Shareholder 1 and 2 get [dividend] income of 100 k each.

There is approxiamtely 15k of higher rate tax paid by each shareholder. So 30k is phyiscally handed over to the IR. Now, it all goes wrong and IR win.

Shareholder 1 is assessed as having income of 200k. This needs 40k of higher rate tax paying. So you stump up 25k - i.e. 40k less the 15k originally paid.

Now Shareholder 2 has income of zero - the 100k allocated to them was never theirs. But they have paid 15k of higher rate tax. How do you get it back? They have to reopen the year. If the normal enquiry window is closed (1 year I think) there is no guarantee that this will be allowed.

So, what I was trying to say was that if you are in a position where a second shareholder pays higher rate tax it might be that it becomes non reclaimable depending on the timing of the enquiry.

In practical terms this may well not be a problem - but it both shareholders end up at 40% taxpayers there is a possible risk of not being able to reclaim tax that has been paid.

[XLMonkey]

Erm, could be wrong, but think that was what I just said:

1. I wasn't suggesting that you continue to operate by the old rules IF the Arctic case is lost. I was saying that for the moment, Arctic won their case, so you are entitled to submit a tax return on the basis that the settlement legislation doesn't apply.
2. Liable to full tax = 25% (since that is the applicable rate on dividend income if you are a higher rate tax payer)
3. On this one you might be right , but the whole point of the OP's thread was that his wife wouldn't be earning much or paying tax, so they wouldn't have made use of the relief in the first place.

The point I was trying to make was that you can take advantage of the tax relief now, and take the risk that you become liable to pay it back later on. But, if you wait until later on, then you cannot retrospectively take advantage of the tax relief.

[ASB]

Like malvolio said, they're not spending 500k on the Arctic case for nothing. They're bound to try and recover as much tax as possible regardless of what you do now.

turbo

I think the IR are more concerned about the situation gonig forwards - provided whatever guidance they issue is followed. However, malvolios view is equally possible.

I personally think the reason they are spending the 500k is so they can ensure the existing legislation applies. I believe the IR should and will lose, but I could be just as wrong as about that.

[turbo]

Nope. The worst that can happen is rather different.

1) There may be charges backwards through time. If Arctic is lost then I expect if you play by the "new rules" i.e. declare the income on *your* tax return then they will not go back. If you continue to play by the old rules - i.e. continue to declare the income on your partners return then they are likely to go back the 6 years they can, seek penalties and interest. If Arctic is won expect a specific change anyway...

Like malvolio said, they're not spending 500k on the Arctic case for nothing. They're bound to try and recover as much tax as possible regardless of what you do now.

turbo

[ASB]

So, the worst that can happen if you do it now is that your other half becomes liable for the 25% rate of tax on the dividend that she has taken.

Nope. The worst that can happen is rather different.

1) There may be charges backwards through time. If Arctic is lost then I expect if you play by the "new rules" i.e. declare the income on *your* tax return then they will not go back. If you continue to play by the old rules - i.e. continue to declare the income on your partners return then they are likely to go back the 6 years they can, seek penalties and interest. If Arctic is won expect a specific change anyway...

2) The charge is assessed on the settlor. The income is reclassified to the settlor and taxed accordingly. This means that there is laible to be full tax paid on it.

3) The recipient of the income may (should even) get relief on it. However if a period of time has elapsed since thier return was filed (now erroneously because income was on it which shouild have been on somebody elses) the it may not be possible to reopen this return to actually get the (now overpaid) tax back.

[XLMonkey]

I'm doing a share split at the moment with the wife buying into the company. It is a calculated risk, because as the other posters have pointed out, the Arctic case has yet to be finalised.

However, the risk isn't quite as extreme as all that - since the Court of Appeal ruled in favour of Arctic systems, you are entitled to assume that you are in the right and HMRC are in the wrong - for the moment at least. So, the worst that can happen if you do it now is that your other half becomes liable for the 25% rate of tax on the dividend that she has taken.

...but, if you wait around for the case to be heard in the House of Lords, then you will lose the opportunity to take advantage of the situation in this tax year (because you can't give the dividend retrospectively). So, there is a downside to waiting as well.

[boredsenseless]

You can draw the same amount of dividend either way as far as i'm aware.

The positive to giving your wife shares would be that you can utilise her tax allowance as well when it comes to getting money out of your company, but if she has a job it may well not be worth doing this (All depends on how much she earns).

The arctic case should be lost by the IR (They have already lost once and are now appealing) so that shouldn't really beto much of a worry.

Bear in mind of course that arctic lost as well in previous hearings, appealled and now we are where we are. It is by no means a foregone conclusion.

You have to take a calculated view of the situation and decide if you feel s660 will remain an issue in the future.

However in my view, if you opt to keep 100% now while s660 is ongoing then suddenly split once if it is won by arctic then aren't you going to have some difficult questions around :

Hector : so you thought your arrangement was s660 did you?
You : Yeah 'spose i did
Hector : but now as we lost arctic you changed to 50/50 split?
You : Yeah loads a dosh to me!!

Hector bends you over and takes what he thinks is his

[andy]

Thanks Guys
My wife is my company secretary and draws minimum salary.
If is split 50% shares with her can i withdraw same amount of dividend as myself without falling into high tax bracket ?
Does this type of split will make me somehow flash up on gordo's radar.

[malvolio]

Make hay whilst the sun shines! Gordo hasnt shut the loop hole yet. I doubt even if they win the appeal that they will go back to claim taxes.

Yes, they will. The legislation they are trying to apply is over 50 years old, so there's no problem at all going back over your last six years assessments. They are spendng close to £500k on the appeal to recover a debt of just over £7k; they wouldn't be doing that if they had no intention of chasing other victims once they've won.

[Newby]

Make hay whilst the sun shines! Gordo hasnt shut the loop hole yet. I doubt even if they win the appeal that they will go back to claim taxes.

[Gonzo]

Shame on you!

I am confused on whether split my company shares with my missus.
My accountant say to keep 100% shares with myself because of arctice case. s360. But the benefit i can see is that i could draw more dividend if i split the shares.
What do the nice people here advise.

Trying to use perfectly legal methods to minimise your tax bill is the sort of thing that incurs Gordo's wrath and results in new legislation being speedily introduced or arcane old ones being resurrected when he gets to hear about it!

As you do not currently have that structure I would wait until the S660 thing is ruled upon next summer if I were you, but then again, IANAA etc etc.

[Ardesco]

You can draw the same amount of dividend either way as far as i'm aware.

The positive to giving your wife shares would be that you can utilise her tax allowance as well when it comes to getting money out of your company, but if she has a job it may well not be worth doing this (All depends on how much she earns).

The arctic case should be lost by the IR (They have already lost once and are now appealing) so that shouldn't really beto much of a worry.

[andy]

I am confused on whether split my company shares with my missus.
My accountant say to keep 100% shares with myself because of arctice case. s360. But the benefit i can see is that i could draw more dividend if i split the shares.
What do the nice people here advise.