Reply to: Register of members & share ledger

[DirtyDog]

I look forward to an HMRC test case on income splitting between unmarried partners; it would be great to have some definitive case law on the matter so everybody can stop speculating and coming up with their own interpretations of the law. At least people would really know where they stand.

I suspect I'll be waiting a long time though...

Ideally, we need two test cases. One where the shares were a gift without any consideration, and one where the shares were sold based on a valuation - there's a big difference between the two.

Then you'd also probably want a couple where the shares were a gift and the recipient doesn't contribute much to the company, and one where they contribute a reasonable amount to the company...

Or just significantly simplified legislation.

[DirtyDog]

What's all this about "justifying" the share? No justification is needed. A bounteous arrangement, as such, creates the settlement. This in itself is not enough to be "caught". The legislation couldn't be clearer about that.

Put it this way, the less connected you are to the receiver of the shares, the harder it would be for HMRC to claim the settlor has retained an interest, so long as the transfer was unconditional.

I could, if I wanted, choose a random stranger and give them a share in my company. Ordinary shares, no strings attached. I'll never see those shares, or the resulting dividends again. It's clearly a settlement as it's not an at arms length, commercial transaction. But there is not a chance that HMRC could contrive to tax those dividends on me, the settlor.

Giving 30% of the company (and I'm making an assumption based on the posts in this thread that the company was not valued or sold to the girlfriend), then paying the dividends monthly into a joint account, makes it a lot harder to argue that this an artificial attempt to avoid paying tax.

It would be a hell of a fight, and one I'm not convinced that the average poster is equipped to win.

[DirtyDog]

For all intensive purposes...

For all intents and purposes...

[DirtyDog]

What I meant was that dividends are paid to both share holders monthly so if we did split I would loose at best a months income, and would cease to invoice from the limited company during said circumstances.

So you empty the company bank account every month? If not, then how are you going to get the money out of the company, without having to give 30% to the ex?

[northernladuk]

Really, your post suggests your understanding needs clarification.

We have several very experienced contractors and accountants warning and you are not listening, my friend.

Good luck.

Indeed and no hint what your own account has suggested either. You do have one?

Well as it appears to be one of those threads where the OP is only willing to listen to the one poster that agrees with him so it's pointless carrying on so fill your boots and do it.

All I can say though is to mention your warchest again. You need 6 months to a years worth in the bank to be comfortable at the moment (maybe double if your gf owns half of it). Divi'ing to just yourself while building this up won't leave enough to need to split for the first year or so anyway. Don't fall in to the trap of getting excited about all this money and spending it all. There will be bench time ahead you need to live through. Read the post currently running about wanting to work. That OP is not the only perso in that position.

[Dallas]

What I meant was that dividends are paid to both share holders monthly so if we did split I would loose at best a months income, and would cease to invoice from the limited company during said circumstances.

Really, your post suggests your understanding needs clarification.

We have several very experienced contractors and accountants warning and you are not listening, my friend.

Good luck.

[nombie]

o

And half the money in your bank and half of whatever future money comes in. I am not sure if phoenixing will be a problem as it is a genuine reason foe change rather than tax avoidance.

Why do you take dividends? Don't you mean you will both be paid dividends into separate bank accounts.

Forget all this for now. Start contracting, learn the ropes, get a warchest going and when all thats sorted then you can start down more risky avenues. The money will still be in the account so not losing anything.

Where is your warchest by the way?

Oh yeah and you should have your corp tax and vat money in your account ready and not spent. She can take that and leave you in the lurch as happened to one of our posters.

What I meant was that dividends are paid to both share holders monthly so if we did split I would loose at best a months income, and would cease to invoice from the limited company during said circumstances.

[northernladuk]

o

I take dividends monthly, so lets assume the worst we split (after 8 years together) what exactly is she going to run away with? My assets are a company laptop and a camera.

And half the money in your bank and half of whatever future money comes in. I am not sure if phoenixing will be a problem as it is a genuine reason foe change rather than tax avoidance.

Why do you take dividends? Don't you mean you will both be paid dividends into separate bank accounts.

Forget all this for now. Start contracting, learn the ropes, get a warchest going and when all thats sorted then you can start down more risky avenues. The money will still be in the account so not losing anything.

Where is your warchest by the way?

Oh yeah and you should have your corp tax and vat money in your account ready and not spent. She can take that and leave you in the lurch as happened to one of our posters.

[nombie]

And you believe that you can argue that what she contributes is 30% of the business? And if she wasn't your girlfriend, you'd offer the same equity to someone who was a normal employee, based on that? Either the business is small, or you'd fail any s660 investigation.

Fingers crossed that you remain together, though - you see enough on CUK about divorce and the wife having a stake in the business, let alone a boyfriend / girlfriend relationship.

I take dividends monthly, so lets assume the worst we split (after 8 years together) what exactly is she going to run away with? My assets are a company laptop and a camera.

[TheCyclingProgrammer]

I'm of half a mind to just ring HMRC anonymously and ask them the question outright. Given the rather technical nature of the question though, I don't suppose somebody at the end if a hotline would be able to give a definitive/educated answer would they?

[TheCyclingProgrammer]

Interesting example in the HMRC guidance that I've missed before.

Example 10:
TSEM4215 - Settlements legislation: Settlements legislation - partnerships
It's talking about partnerships, but in the context of the legislation, this is just an alternative "arrangement" to transferring shares in a company.

The example makes it clear that, because the partnership creates a transfer of income but not capital rights, the spouse exemption doesn't apply and therefore the arrangement is caught.

He final paragraph is the interesting bit. It says quite clearly, that if the new partner in the arrangement was not a spouse or civil partner, then it is NOT caught, unless there is some kind of arrangement for the property to be returned to the settlor.

To me this couldn't make it any clearer. If you're not married, then unless you have a documented/provable arrangement whereby the transferred shares or dividend income would be returned to you for any reason, unmarried couples (or friends, or any other person that isn't your spouse/civil partner/child) simply aren't caught (or at worst, it would be very difficult to make a case).

My own personal opinion is that HMRC went after the Arctic case because they thought challenging married couples would be a lot easier than arrangements between unmarried couples: all they had to do was argue that the spouse exemption did not apply and they would win. We all know how that ended up.

To make the legislation stick to unmarried couples would require more effort and whilst not impossible, you'd have to be doing something very silly like transferring your partners dividend income into your own account to end up caught IMO.

[TheCyclingProgrammer]

Yes it is. GF is different to husband and wife. For all intensive purposes she is a stranger tax wise. Most definitely need a case to settle it. I would think, as I just mentioned, an unmarried partner would be considered as a stranger just as they are for many other tax situations would. No point in having any legislation if they were happy with that.

That's just the thing though. An unmarried partner being "unconnected" would probably work in your favour. I think any discussions about whether or not a scenario is contrived or not need to look at the bigger picture; you can have unmarried couples who have been together for many years, with children and other joint commitments. You can't say one is more contrived than another just because they don't happen to have a marriage certificate.

Although it's worth noting that he legislation doesn't talk about connected or unconnected persons. It mentions spouses as being caught unless the spouse exemption applies; children; and trust situations. Nothing else.

It all hinges on the issue of retained interest, not who received them (unless one of the above). HMRC guidance says that most settlement cases will only apply to spouses or children although "in theory" could apply to any two people.

[northernladuk]

No more contrived than most husband/wife splits though. And whilst we all know what HMRCs view of that is, to date they've not been able to do anything about it.

Personally, I'd avoid paying the dividends into a joint account too, but that's just erring on the side of caution. In the event if a (very unlikely) investigation you don't want to give HMRC any unnecessary ammo.

I look forward to an HMRC test case on income splitting between unmarried partners; it would be great to have some definitive case law on the matter so everybody can stop speculating and coming up with their own interpretations of the law. At least people would really know where they stand.

I suspect I'll be waiting a long time though...

Yes it is. GF is different to husband and wife. For all intensive purposes she is a stranger tax wise. Most definitely need a case to settle it. I would think, as I just mentioned, an unmarried partner would be considered as a stranger just as they are for many other tax situations would. No point in having any legislation if they were happy with that.

[TheCyclingProgrammer]

There is absolutely nothing about this setup that doesn't scream contrived setup to gain a tax advantage and you can guess HMRCs view of that.

No more contrived than most husband/wife splits though. And whilst we all know what HMRCs view of that is, to date they've not been able to do anything about it.

Personally, I'd avoid paying the dividends into a joint account too, but that's just erring on the side of caution. In the event if a (very unlikely) investigation you don't want to give HMRC any unnecessary ammo.

I look forward to an HMRC test case on income splitting between unmarried partners; it would be great to have some definitive case law on the matter so everybody can stop speculating and coming up with their own interpretations of the law. At least people would really know where they stand.

I suspect I'll be waiting a long time though...

[TheCyclingProgrammer]

What's all this about "justifying" the share? No justification is needed. A bounteous arrangement, as such, creates the settlement. This in itself is not enough to be "caught". The legislation couldn't be clearer about that.

Put it this way, the less connected you are to the receiver of the shares, the harder it would be for HMRC to claim the settlor has retained an interest, so long as the transfer was unconditional.

I could, if I wanted, choose a random stranger and give them a share in my company. Ordinary shares, no strings attached. I'll never see those shares, or the resulting dividends again. It's clearly a settlement as it's not an at arms length, commercial transaction. But there is not a chance that HMRC could contrive to tax those dividends on me, the settlor.