Reply to: How to pay dividends to foreign shareholders

[TheCyclingProgrammer]

Throwing another spanner in the works, if your mother owns 25% of the shares are they listed as a person with significant control of the company?

As NLUK says, it’s more than 25%.

[northernladuk]

Throwing another spanner in the works, if your mother owns 25% of the shares are they listed as a person with significant control of the company?

Everything seems to say MORE than 25% of the shares.

‘People with Significant Control’ Companies House register goes live - GOV.UK

People with significant control (PSC): who controls your company? - GOV.UK

and so on.

[SimonMac]

Throwing another spanner in the works, if your mother owns 25% of the shares are they listed as a person with significant control of the company?

[WordIsBond]

But... But.. I asked my accountant I did

If only your plan was QC approved.

[WordIsBond]

It really depends on what sort of business you are conducting under a limited company. If you are a contractor working as limited company then HMRC could investigate this. There is no reason for you to gift shares to relatives when they are not contributing anything.

There's no reason to gift shares to relatives who aren't contributing anything if you own a shop, or are manufacturing models of angels dancing on the head of a pin, or run a dog-babysitting business, either. If you are a contractor working as a limited company, as far as tax law is concerned and as long as you are not inside IR35, you have a business just like any other, and you can treat the shares just like any other business.

[northernladuk]

I commend your creativity, and recommend that you keep contracting and not become an accountant or tax advisor.

But... But.. I asked my accountant I did

[WordIsBond]

Just give shares to your dad who can then just give the money to your child. Sorted.

I commend your creativity, and recommend that you keep contracting and not become an accountant or tax advisor.

[northernladuk]

Just to be clear... Are you saying you can't gift shares to a child as they are effectively under your control so the money is still yours?

If that's the case, could you gift shares to a child's trust fund? One that the adult has no access to and the child cannot access till they're 18?
It seems unlikely to me but not sure how it stacks against actual law.

Just give shares to your dad who can then just give the money to your child. Sorted.

[TheCyclingProgrammer]

Just to be clear... Are you saying you can't gift shares to a child as they are effectively under your control so the money is still yours?

Settlements legislation under s629 (which is completely separate to the usual settlor-retained interest rule (s624) that would normally catch spousal arrangements) explicitly treats gifted shares to an unmarried minor child as income of the settlor:

TSEM4300 - Trusts, Settlements and Estates Manual - HMRC internal manual - GOV.UK

If that's the case, could you gift shares to a child's trust fund? One that the adult has no access to and the child cannot access till they're 18?
It seems unlikely to me but not sure how it stacks against actual law.

Its not an area of the settlements legislation I have a lot of knowledge of except to say that there are rules that explicitly cover trusts. The above page seems to indicate that using a trust would not avoid s629 settlement rules though.

[Lance]

'Open season' implies there are no rules. That's not quite the case.

If you have half a million quid in your company and you give your cousin 50% of the company you have gift tax issues, undoubtedly. But if you have a company with no funds, especially if it is a startup, and you want to give your cousin half of it, well, set the share capital at £1 / share, and issue him one share and one to you, and make him pay his £1.

If he actually owns the shares, and you aren't using alphabet shares to play silly games with it so that he doesn't have voting rights, and (most crucially) the money is never coming back to you in any way, you've got no problems.

You can give your spouse shares even if you have retained funds, no issues there. Just make sure you understand how the spouse exemption works so you don't mess it up.

Don't try to give shares to your kids, though. It's not going to work. Ok, I gave shares to my kids when we started -- but not to minors, and they are active participants (fee earners) in the business.

Just to be clear... Are you saying you can't gift shares to a child as they are effectively under your control so the money is still yours?

If that's the case, could you gift shares to a child's trust fund? One that the adult has no access to and the child cannot access till they're 18?
It seems unlikely to me but not sure how it stacks against actual law.

[TheCyclingProgrammer]

The settlements legislation does not apply to spouses
HMRC cannot apply the settlements legislation to arrangements between spouses. This was confirmed by the House of Lords ruling against HMRC in the Arctic Systems case. HMRC had tried to prove that IT contractor Geoff Jones, the fee-earning spouse in a husband-and-wife-owned limited company, had made a ‘bounteous settlement’ of shares in his company on his wife Diana, a non-fee earner.

HMRC had argued that the resulting dividend payments to Diana should be treated as Geoff Jones’ income, and taxed accordingly. But HMRC lost the case, and the ruling has provided married contractors with certainty about the settlement legislation’s exemption for spouses and civil partners.

As long as the shares are ordinary class shares, this means a fee earning contractor can jointly own a limited company with their non-fee-earning spouse or civil partner, split the income from the ordinary shares, and have no fear that HMRC will attempt to tax all the income as the contractor’s.

Nice copy paste. I can assume you I’m VERY aware of the Arctic case and it’s implications.

I suggest you re-read the last paragraph of your post and then you’ll realise that the first sentence of your post is nonsense.

Arctic established the conditions under which income splitting with a spouse can work (the spouse exemption HAS to apply). It most definitely did not establish that spouses were “exempt” from the legislation. The case also established that the transaction was definitely a settlement due to its bounteous nature and if HMRC had successfully argued that the spouse exemption did not apply in that case they would have won.

In the absence of the spouse exemption applying, settlements between spouses are caught *by default*. This is because a settlor is deemed as retaining an interest in any shares or derived income if they can be applied for the benefit of either themselves OR THEIR SPOUSE.

It’s all there in the legislation in black and white. HMRCs own guidance states that while the settlements legislation can potentially apply to anyone, it is typically applied to settlements “between spouses, civil partners or minor unmarried children”.

[jmann]

It really depends on what sort of business you are conducting under a limited company. If you are a contractor working as limited company then HMRC could investigate this. There is no reason for you to gift shares to relatives when they are not contributing anything.

If you are running a business then I do not see any problem with this. I know lots of people are doing this to avoid paying tax. They gift shares to relatives in other countries and they never had any problem. Even if they investigate, you can easily come up with a reason for gifting shares.

[WordIsBond]

I'm confused. So it's open season in close relative having shares in the company then?

'Open season' implies there are no rules. That's not quite the case.

If you have half a million quid in your company and you give your cousin 50% of the company you have gift tax issues, undoubtedly. But if you have a company with no funds, especially if it is a startup, and you want to give your cousin half of it, well, set the share capital at £1 / share, and issue him one share and one to you, and make him pay his £1.

If he actually owns the shares, and you aren't using alphabet shares to play silly games with it so that he doesn't have voting rights, and (most crucially) the money is never coming back to you in any way, you've got no problems.

You can give your spouse shares even if you have retained funds, no issues there. Just make sure you understand how the spouse exemption works so you don't mess it up.

Don't try to give shares to your kids, though. It's not going to work. Ok, I gave shares to my kids when we started -- but not to minors, and they are active participants (fee earners) in the business.

[oilboil]

The settlements legislation is generally more of a risk between spouses because in that case you need to ensure the spouse exemption applies otherwise the arrangement will be caught by default.

The settlements legislation does not apply to spouses
HMRC cannot apply the settlements legislation to arrangements between spouses. This was confirmed by the House of Lords ruling against HMRC in the Arctic Systems case. HMRC had tried to prove that IT contractor Geoff Jones, the fee-earning spouse in a husband-and-wife-owned limited company, had made a ‘bounteous settlement’ of shares in his company on his wife Diana, a non-fee earner.

HMRC had argued that the resulting dividend payments to Diana should be treated as Geoff Jones’ income, and taxed accordingly. But HMRC lost the case, and the ruling has provided married contractors with certainty about the settlement legislation’s exemption for spouses and civil partners.

As long as the shares are ordinary class shares, this means a fee earning contractor can jointly own a limited company with their non-fee-earning spouse or civil partner, split the income from the ordinary shares, and have no fear that HMRC will attempt to tax all the income as the contractor’s.

[northernladuk]

I'm confused. So it's open season in close relative having shares in the company then?