Reply to: Making someone a shareholder Vs Gifting shares

[ASB]

£100 pw salary plus £2,588 pcm divi comes to £3,021 pcm which you can take without incurring any tax liability.

I think you meant additional tax liability (i.e. higher rate income tax). The divi has of course already suffered CT in most cases.

[ookook]

This is no doubt a stupid question, but why don't you ask your accountant to explain his figures and your tax liability for them. That's what you pay him for.

It probably is a stupid question but i didnt know the answer, and this way others get to benefit from my stupidity by seeing the answer in a forum

[THEPUMA]

how do expenses affect the 3K odd a month figure you mentioned Puma?

My accountant sends me a wage slip with my directors salary @ £500 odd pcm plus another £500 odd in expenses I incurred during the month - from my personal expenditure as opposed to straight from the ltd co bank account

Does that extra £500 in expenses count towards the 3K odd i should be withdrawing to minimise tax?

Ie should I draw 2K in divis to make my total £500 salary £500 expense £2K divis

or is it added on so i can draw £500 salary £500 expense £2.5K divis?

It's £3K plus expenses.

[malvolio]

how do expenses affect the 3K odd a month figure you mentioned Puma?

My accountant sends me a wage slip with my directors salary @ £500 odd pcm plus another £500 odd in expenses I incurred during the month - from my personal expenditure as opposed to straight from the ltd co bank account

Does that extra £500 in expenses count towards the 3K odd i should be withdrawing to minimise tax?

Ie should I draw 2K in divis to make my total £500 salary £500 expense £2K divis

or is it added on so i can draw £500 salary £500 expense £2.5K divis?

This is no doubt a stupid question, but why don't you ask your accountant to explain his figures and your tax liability for them. That's what you pay him for.

[ookook]

how do expenses affect the 3K odd a month figure you mentioned Puma?

My accountant sends me a wage slip with my directors salary @ £500 odd pcm plus another £500 odd in expenses I incurred during the month - from my personal expenditure as opposed to straight from the ltd co bank account

Does that extra £500 in expenses count towards the 3K odd i should be withdrawing to minimise tax?

Ie should I draw 2K in divis to make my total £500 salary £500 expense £2K divis

or is it added on so i can draw £500 salary £500 expense £2.5K divis?

[Lewis]

£100 pw salary plus £2,588 pcm divi comes to £3,021 pcm which you can take without incurring any tax liability.

Ah ok I get you. yep that's fine. So are you saying, do that until Artic result keeping rest in company accounts? yes I supose that is very good advice. I don't need any more than that to survive. Ok you've persuaded me.

[THEPUMA]

Eh? I'm not following. At present I am paying myself above £10K and wife below £5K. I have 100% shares and have yet to declare any dividends from this Ltd. I can obviously take up to around £20K divs myself with no extra tax but what is the £3K per month tax free?

£100 pw salary plus £2,588 pcm divi comes to £3,021 pcm which you can take without incurring any tax liability.

[Lewis]

My advice would be that if you need more than you can personally take tax-free (approx £3K pcm),

Eh? I'm not following. At present I am paying myself above £10K and wife below £5K. I have 100% shares and have yet to declare any dividends from this Ltd. I can obviously take up to around £20K divs myself with no extra tax but what is the £3K per month tax free?

[Lewis]

Dividend is always paid with 10% tax credit whether it is to you or your wife. He/She will have to pay this back via self assessment.

If the dividend you pay takes her over the 40% bracket (39K or something) then 40% applies .

I asked how to gift shares not pay dividends.

[THEPUMA]

Dividend is always paid with 10% tax credit whether it is to you or your wife. He/She will have to pay this back via self assessment.

If the dividend you pay takes her over the 40% bracket (39K or something) then 40% applies .

If you are a non-higher rate taxpayer there is no tax on dividends. If you are a higher rate taxpayer, the effective tax rate is 25% of the dividend received.

This is after taking account of the corporation tax paid by the company so if the company pays 20% corporation tax, the total effective rate for a non-higher rate taxpayer is 20% and for a higher rate taxpayer is 40%.

[texto]

And if you split shares 1 each on company formation, can you reverse this and remove them, and then gift them back to the person who originally had them?

I think someone would call shenanigans pretty sharpish if you did.

Hmm I would've thought that what ever is yours can be gifted i.e if you own 75% - that's yours and you can gift some to anyone.

Correct me if I'm wrong.

[THEPUMA]

Fantastic. In which case I want to gift my wife shares now. Don't care about outcome of Arctic. Will just hope I'm not Arctic-2! How do you go about it? I read something about if wife your is already an employee and gifted shares she must pay tax on share value.

There is still a risk associated with paying your wife under this structure. My advice would be that if you need more than you can personally take tax-free (approx £3K pcm), then pay the surplus as a dividend to your wife but if you don't need more than that, I would hold your horses until after Arctic.

In order to gift shares to your wife, you simply have to complete a stock transfer form. The employment related securities legislation should not apply in this case as you are gifting her shares in her capacity as your wife rather than as an employee.

And if you split shares 1 each on company formation, can you reverse this and remove them, and then gift them back to the person who originally had them?

I think someone would call shenanigans pretty sharpish if you did.

I agree this looks a bit dodgy but I guess if you are going to pay your spouse dividends, you would be better off reversing and gifting than carrying on the way you are.

And the honest reason for what you are doing is that you have realised that your original structure prevents you from being able to use the exemption in s660, you have now read the legislation and are amending your shareholding structure in order to be able to take advantage of this exemption, which HMRC would apply very literally.

[texto]

Fantastic. In which case I want to gift my wife shares now. Don't care about outcome of Arctic. Will just hope I'm not Arctic-2! How do you go about it? I read something about if wife your is already an employee and gifted shares she must pay tax on share value.

Dividend is always paid with 10% tax credit whether it is to you or your wife. He/She will have to pay this back via self assessment.

If the dividend you pay takes her over the 40% bracket (39K or something) then 40% applies .

[mjshrimpton]

And if you split shares 1 each on company formation, can you reverse this and remove them, and then gift them back to the person who originally had them?

I think someone would call shenanigans pretty sharpish if you did.

[Lewis]

An important distinction is that all of the shares should be issued to one spouse and then however many desired should be gifted from one spouse to another.

The reason is that there is an exemption in what was s660 fICTA 1988 applying to gifts between spouses. The Jones' have not been able to argue that this exemption applies to their case simply because Diana was allotted shares rather than following the procedure recommended above.

So if the Arctic system case is lost (and from the informed people I have discussed it with, it is on a knife edge), taxpayers who have set up in this way will be able to distinguish themselves from Arctic and carry on paying dividends to spouses until and unless a further case is lost.

Puma

Fantastic. In which case I want to gift my wife shares now. Don't care about outcome of Arctic. Will just hope I'm not Arctic-2! How do you go about it? I read something about if wife your is already an employee and gifted shares she must pay tax on share value.