Reply to: Share splitting with non-married Partner

[pr1]

I haven't read the responses on here as I post this but I can guess what most of them say. "Don't do it", "you can only do it if you're married". Complete and utter rubbish based on a shallow understanding of the settlements legislation.

There isn't really much case law on this scenario - that's the biggest risk factor, it's not been tested in court.

It's not automatically caught by settlements legislation (despite what many think), but it's not precluded from being caught either.

The spouse exemption doesn't apply but it's also irrelevant if you're unmarried anyway. Key test is whether or not you retain an interest in the gifted shares or any derived income. Strictly speaking, a no-strings attached gift of shares should mean you no longer retain an interest in them.

That's got to be the shortest TLDR; I've ever written on this subject on this forum. Feel free to do a search if you want to see my much longer explanation as I'm not going to repeat it - suffice it to say that the majority of posters on here don't really understand the legislation properly, only what they've read about the Arctic case in the past.

This was also my understanding after ringing the IPSE/AbbeyTax tax/legal helpline a few years ago. OP, Ring them for a more informed opinion

[malvolio]

I haven't read the responses on here as I post this but I can guess what most of them say. "Don't do it", "you can only do it if you're married". Complete and utter rubbish based on a shallow understanding of the settlements legislation.

There isn't really much case law on this scenario - that's the biggest risk factor, it's not been tested in court.

It's not automatically caught by settlements legislation (despite what many think), but it's not precluded from being caught either.

The spouse exemption doesn't apply but it's also irrelevant if you're unmarried anyway. Key test is whether or not you retain an interest in the gifted shares or any derived income. Strictly speaking, a no-strings attached gift of shares should mean you no longer retain an interest in them.

That's got to be the shortest TLDR; I've ever written on this subject on this forum. Feel free to do a search if you want to see my much longer explanation as I'm not going to repeat it - suffice it to say that the majority of posters on here don't really understand the legislation properly, only what they've read about the Arctic case in the past.

Actually I followed Arctic end to end and I think I have a firm grasp of the legal issues. And yes, it's about who ends up with the income, and yes, a non-related person is outside the scope of S660.

But that's not what we (or at least I) said. Apart from the neurotic fears of giving away money to "other people", Hector can easily disregard the share structure and, as I said, look through this to put the taxation liability back on the OP. Hence, don't do it.

Perhaps read the thread properly before commenting?

[TheCyclingProgrammer]

I haven't read the responses on here as I post this but I can guess what most of them say. "Don't do it", "you can only do it if you're married". Complete and utter rubbish based on a shallow understanding of the settlements legislation.

There isn't really much case law on this scenario - that's the biggest risk factor, it's not been tested in court.

It's not automatically caught by settlements legislation (despite what many think), but it's not precluded from being caught either.

The spouse exemption doesn't apply but it's also irrelevant if you're unmarried anyway. Key test is whether or not you retain an interest in the gifted shares or any derived income. Strictly speaking, a no-strings attached gift of shares should mean you no longer retain an interest in them.

That's got to be the shortest TLDR; I've ever written on this subject on this forum. Feel free to do a search if you want to see my much longer explanation as I'm not going to repeat it - suffice it to say that the majority of posters on here don't really understand the legislation properly, only what they've read about the Arctic case in the past.

[Lance]

Share splitting with non-married Partner

I thought that the legislation only applied to gifts between spouses being exempt from consideration as a settlement?

If the partner is buying the shares in the company for a fair market valuation, then there is nothing that makes that illegal / inappropriate / wrong.

Sell the shares at the appropriate value and you are fine - in the same way that you could sell them to a totally unrelated party.

I believe that S660 is about gifting income rather than shares. Arctic systems won their case, in part, due to he shares being equal class and them being married. Being about income, I’m not sure that selling shares rather than gifting makes a difference with a spouse.

I agree that gifting shares is stupid. I sold shares to my wife, albeit based on a nugatory valuation.
Other than don’t do it, I would advise OP to sell shares based on a genuine valuation, which in effect is the retained profit.

[TonyF]

However it's still a very bad idea. It only works with spouses, nobody else, not even close relatives.

I thought that the legislation only applied to gifts between spouses being exempt from consideration as a settlement?

If the partner is buying the shares in the company for a fair market valuation, then there is nothing that makes that illegal / inappropriate / wrong.

Sell the shares at the appropriate value and you are fine - in the same way that you could sell them to a totally unrelated party.

[TonyF]

Wouldn't that be quite difficult to do if a contract is inplace for the current company to provide services etc?

Not really - you terminate the current contract and you then get a new contract with the new company. Happens all the time.

[northernladuk]

Wouldn't that be quite difficult to do if a contract is inplace for the current company to provide services etc?

Picking the advice he likes best out of the mass of 'don't do it' responses... Nice..

[malvolio]

Wouldn't that be quite difficult to do if a contract is inplace for the current company to provide services etc?

Not really, You novate the contract to the new company.

However it's still a very bad idea. It only works with spouses, nobody else, not even close relatives.

And sack your accountant.

[gnarledcontractor]

and dont get married

+1

[stephenwil]

Start a brand new company and split the shares accordingly when you create the company. That way it's very easy to determine the valuation of the company - it's £1 or whatever the share capital is.

Though I'd be very wary of splitting my company with someone who I wasn't married to, unless they were earning in proportion to their shareholding as well.

Wouldn't that be quite difficult to do if a contract is inplace for the current company to provide services etc?

[Willapp]

and dont get married

Amen.

[TonyF]

Start a brand new company and split the shares accordingly when you create the company. That way it's very easy to determine the valuation of the company - it's £1 or whatever the share capital is.

Though I'd be very wary of splitting my company with someone who I wasn't married to, unless they were earning in proportion to their shareholding as well.

[tarbera]

good advice

Don’t do it.

and dont get married

[malvolio]

This only works between spouses - see the Arctic Systems judgement for the detailed reasons. Your partner can buy shares and can take on a salaried role as a director, but it won't help your tax position in the slightest and could be challenged by HMRC, especially if the new shareholder's input to the company is disproportionate to the rewards gained. HMRC would probably rightly conclude this was an artificial arrangement to avoid tax and treat all your partner's income as your own and tax you accordingly.

So, as the man said, don't.

I would also be more worried by your accountants not knowing this and giving you bad advice that also conflicts with case law.

[northernladuk]

How long have you been together? I'd say don't give half your company to someone you aren't married to.or at least have been together a long time. You'll have to keep paying her half your money when you split up. We see it plenty on here.

If you want to kid yourself she does 8k of work for the company then fill your boots with that one.