Reply to: Husband - Wife shareholding

[ASB]

If I did it, I would call it Tax efficiency!!

The way it was worked with my kids was that the shares were actually a gift from my ex to the kids (not their mother btw) and I bunged her a couple of extra sofa's from the settlement...so they got their shares in the company through a legitimate external source and any dividends they now earn are surely theirs on not a gift in any way from me...does that sound ok?

As I say, if not then I'm not concerned as it wasn't done for tax EFFICIENCY reasons

Probably. The bit that catches gifts to minor children can be found in here:-

http://www.hmrc.gov.uk/practitioners/guide_sba.pdf

660B 5 page 35.

I would think that probably does not catch the income in your case.

But: Do you retain an interest? I would think there is a fairly high risk of that.

However, if you are not a UK taxpayer or only a basic rate taxpayer then the effect of asessing it to you would presumambly be nil anyway.

[ASB]

It's called tax avoidance when I do it !

Vito - I think what ASB is saying is that if you pass money onto your kids then it is taxed as though it is yours ie. you give them 1K, it earns 50 quid interest, it's taxed at your tax rate ( 40% tax ? ) not as part of their income ( 0% tax ). If a grandparent gives it to them then it is deemed to be theirs and they can use their own tax free allowance and lower rate tax band.

ASB - my kids have some bare trust investments via grandparents, when can the kids make a grab for the money and we can do nowt about it, 16, 18, younger ?

18.They become theirs absolutely. Of course if they don't know where the passbook/certificates etc are....

[Vito]

It's called tax avoidance when I do it !

Vito - I think what ASB is saying is that if you pass money onto your kids then it is taxed as though it is yours ie. you give them 1K, it earns 50 quid interest, it's taxed at your tax rate ( 40% tax ? ) not as part of their income ( 0% tax ). If a grandparent gives it to them then it is deemed to be theirs and they can use their own tax free allowance and lower rate tax band.

ASB - my kids have some bare trust investments via grandparents, when can the kids make a grab for the money and we can do nowt about it, 16, 18, younger ?

If I did it, I would call it Tax efficiency!!

The way it was worked with my kids was that the shares were actually a gift from my ex to the kids (not their mother btw) and I bunged her a couple of extra sofa's from the settlement...so they got their shares in the company through a legitimate external source and any dividends they now earn are surely theirs on not a gift in any way from me...does that sound ok?

As I say, if not then I'm not concerned as it wasn't done for tax EFFICIENCY reasons

[rootsnall]

So you are quite clearly practising tax evasion then. Send for the cops, chaps...

It's called tax avoidance when I do it !

Vito - I think what ASB is saying is that if you pass money onto your kids then it is taxed as though it is yours ie. you give them 1K, it earns 50 quid interest, it's taxed at your tax rate ( 40% tax ? ) not as part of their income ( 0% tax ). If a grandparent gives it to them then it is deemed to be theirs and they can use their own tax free allowance and lower rate tax band.

ASB - my kids have some bare trust investments via grandparents, when can the kids make a grab for the money and we can do nowt about it, 16, 18, younger ?

[Vito]

Unfortunately that may well be ineffective.

The kids are minors. Where did they get the money to buy the shares.

If it was either you or your ex-wife then the divi is asessable to you under the settlements legislation anyway. If the money came from elsewhere (e.g. grand parents, paper round etc), then you will need good evidence to back up the claim. If it is is any way tainted with other funds (e.g. all gifts etc went through one building socienty account then you will struggle to prove which specific money was used for the buyout).

If the shares are still nominally held by the minor children (they can't hold them themsleves so they must at least be in a bare trust) then some caution is necessary. It's best to draw up a formal trust deed and get it stamped at the relevant revenue office. Although simply designating them under ownership is usually enough it is best to formalise it with the IR.

If the trust is either a discretionary or an accumulation and maintenance trust then the situation may be slightly different, but in any event the tax treatment is unlikely to yield much if any savings.

Not sure I understand most of this...I'll check it out with my accountant!!

To be honest though I'm not worried if this money gets taxed, it was done as a very genuine way of involving my kids in my business and ensuring that they have savings for university etc when they are older...if it is a tax efficient way of me saving for their future then terrific, if not then that is fine...

[ASB]

Nope...left all the cash in the company (it was tax exempt as it was from overseas earnings) and my kids bought her 5% off her...it wasn't an easy process but some clever arguements (all of which I don't understand) meant she couldn't get her grubby hands on my business!

Now my kids will get divi's each which goes straight into a trust fund which is frozen until they are 18...

Unfortunately that may well be ineffective.

The kids are minors. Where did they get the money to buy the shares.

If it was either you or your ex-wife then the divi is asessable to you under the settlements legislation anyway. If the money came from elsewhere (e.g. grand parents, paper round etc), then you will need good evidence to back up the claim. If it is is any way tainted with other funds (e.g. all gifts etc went through one building socienty account then you will struggle to prove which specific money was used for the buyout).

If the shares are still nominally held by the minor children (they can't hold them themsleves so they must at least be in a bare trust) then some caution is necessary. It's best to draw up a formal trust deed and get it stamped at the relevant revenue office. Although simply designating them under ownership is usually enough it is best to formalise it with the IR.

If the trust is either a discretionary or an accumulation and maintenance trust then the situation may be slightly different, but in any event the tax treatment is unlikely to yield much if any savings.

[malvolio]

Surely you just had to pay out all the Ltd money in divis once divorce loomed. Infact a good excuse to shut the Co down and use your CGT allowance for a bit of tax dodging. I've got all the family money in the wife's name for tax reasons but she conveniently doesn't know the passwords to any of the bank accounts or her share trading account.

So you are quite clearly practising tax evasion then. Send for the cops, chaps...

[Vito]

Nope...left all the cash in the company (it was tax exempt as it was from overseas earnings) and my kids bought her 5% off her...it wasn't an easy process but some clever arguements (all of which I don't understand) meant she couldn't get her grubby hands on my business!

Now my kids will get divi's each which goes straight into a trust fund which is frozen until they are 18...

[rootsnall]

My ex had a 5% share in my company and when we split she went for half of the company in the same way that she got half of everything else...she didn't get it and had to settle for the 5%...so personally, I'd keep as much of it as you can to yourself...don't assume that your wife would get half if you split...and certainly don't assume you won't split...

And yes...I am still bitter!!!!

Surely you just had to pay out all the Ltd money in divis once divorce loomed. Infact a good excuse to shut the Co down and use your CGT allowance for a bit of tax dodging. I've got all the family money in the wife's name for tax reasons but she conveniently doesn't know the passwords to any of the bank accounts or her share trading account.

[Vito]

My ex had a 5% share in my company and when we split she went for half of the company in the same way that she got half of everything else...she didn't get it and had to settle for the 5%...so personally, I'd keep as much of it as you can to yourself...don't assume that your wife would get half if you split...and certainly don't assume you won't split...

And yes...I am still bitter!!!!

[malvolio]

Interesting discussion. My wife and I hold a 50/50 shareholding.
...snip...
But that's the whole point, no one really has any clearly defined rules for this.

Actually they do, the rules are quite clear. It's just that Hector has decided unilaterally to re-interpret them by ignoring precedent and the original, clearly stated intent of Parliament.

S660a was meant to stop Jack Hawkins gifting lumps of his income to his kids via shares they "owned" and paid no tax on but whose income he benefited from. It was never intended to apply to married couples, especially since when it was written the wife's income was treated as her husband's.

[oxtailsoup]

Artic

Interesting discussion. My wife and I hold a 50/50 shareholding.

My accountant advised me to take 100% shareholding in our limited company at first. But my wife is a self employed accounts trainer and also invoices a revenue through our company. Though no where near as high as mine currently.

My accountant then said that my wifes shareholding should be in proportion to her input. However......

Firstly my income in the company is not fixed. On a good year I may invoice £130k, on a really bad year I may invoice £0 ! (never happened but by the nature of the business it is variable). My wife invoices a lot less but it is consistant. And she has been a shareholder since day one.

Also my wife also does all the paperwork for the company (mine and hers) and is a part qualified accountant herself.

So in my mind her input could successfully be described as 50% in effort if not revenue.

My accountant (SJD) didn't really have an answer to this argument and agreed that there were no real guidelines. So I rang my local tax office to discuss it with them last year (just after Artic won the hearing). They didn't have a clue. They said they had no guidelines on this and agreed that as my wife was working full time for the business then she should be allowed 50% of the shares. Obviously this chat I had with the tax office was to be taken with a pinch of salt as they really had no idea. But that's the whole point, no one really has any clearly defined rules for this.

[rootsnall]

If you are in the PCG (I'm not anymore) you should be able to dig it up from their forums.

Alternatively I seem to recall it made it into Hansard, but I had a quick look around and turned up this:-

http://www.hmrc.gov.uk/IR35/penalty.htm

http://www.shout99.com/contractors/s...id=14074&n=300

Of course one needs to be able to reasonably show beleif of being outside IR35.

Thanks. I hadn't seen the statement in the second link before.

[ASB]

PMG ? Any articles/links on this ? If there are defo no related IR35 penalties then I'll sleep a little sounder.

If you are in the PCG (I'm not anymore) you should be able to dig it up from their forums.

Alternatively I seem to recall it made it into Hansard, but I had a quick look around and turned up this:-

http://www.hmrc.gov.uk/IR35/penalty.htm

http://www.shout99.com/contractors/s...id=14074&n=300

Of course one needs to be able to reasonably show beleif of being outside IR35.

[hattra]

Nevertheless the key point at issue in Arctic is whether or not a wife actively contributes to the creation and operation of a company merely by virtue of being married to her husband.

Curiously, it seems that when a marriage ends, the Courts usually do consider that a wife has made a major contribution to the creation & operation of a company, simply by virtue of being married to her husband - or am I just being a bitter old cynic?