Wife shares gifting

[zafoeta]

Hi,

I have read a fair bit around shares gifting to the wife on this forum and so far I basically learnt that HMRC shouldn't see it as tax avoidance as long as the shares have voting rights.

I am thinking now to make my wife a shareholder of my ltd, as we had a little girl and she is not working anymore. However, it's a bit more complex than this, as she might return to work in around one-three years down the line and earn considerably. I was wondering what sort of options I have in this case.

Basically three questions/options:
1. If I gift her shares and she gifts them back down the line, is this legally a tax avoidance scheme or is it ok?
2. To better split dividends, my accountant suggested to have class A and class B shares, both with voting rights. I would give my wife class B shares, and I would get class A shares (me being the sole director). Is this an acceptable setup (legally) from HMRC point of view or would this be a clear tax avoidance scheme?
3. If I gift her class A shares, and once she returns to work earning considerably, would it be legal to shut down the existing ltd (or place it dormant) and start a new ltd with me as sole shareholder again?

Any suggestions would be very welcome.

Thanks
W

[northernladuk]

Is your an accountant a contractor specialist. iMO the alphabet shares advice from a contractor accountant isnt what I'd expect.

[SueEllen]

As NLUK said change accountants to one who understands about knowledge workers especially IT.

Any accountant who says alphabet shares should be used should be avoided as it's seen as a straight tax dodge by HMRC.

In addition a contractor accountant would ask you whether you can make your wife company secretary. That way if you choose, you can pay her a tax efficient salary to compensate for her legal responsibilities as an officer of the company who supports the director(s). There are advantages in doing this e.g. credits for NI contributions. Once she goes back to work she can simply resign from the position or you could sack her as she won't have time to carry out the responsibilities that come with the role, work and look after a child.

Also while we can tell you what is valid now no one including an accountant can tell you what the tax laws will be in 2 or 3 years time e.g. no one knew about the dividend tax 2 years ago, so it's worth changing now to an accountant who deals with contractors.

[mudskipper]

Is your an accountant a contractor specialist. iMO the alphabet shares advice from a contractor accountant isnt what I'd expect.

I've heard conflicting advice on this - will try and get more detail.

[northernladuk]

I've heard conflicting advice on this - will try and get more detail.

The advice will change ahead of the new divi tax IMO but giving it as flat advice without consideration of the upcoming changes isn't clever I don't think. Could be the right advice but for the wrong reasons and used incorrectly.

[WordIsBond]

There's some risk with alphabet shares, unless there is a business reason for them. In your case, you haven't given any business reason (only tax reason), which means it is risky. I have read (don't know if true) that HMRC does use Companies House records to target investigations -- if so, you could even be waving a red flag saying, "Investigate me."

It is clearly safer if the shares have equal rights.

I don't see why it is necessary, though. Just make your wife company secretary or a director, have her do the bookkeeping, and pay her a small salary. Give her an equal number of shares, and pay out dividends to both of you.

If she goes back to work, you could close down the company and start a new one, but why? Just have her gift some of the shares back to you and resign her company office. Leave her with 1/7th of the company. Then, you can pay a dividend every year that gives her £5K (tax free) and gives you £30K, and pay yourself a salary of around £10K. Sorted.

You don't need to have alphabet shares, and you don't need to close down your company. You just need to gift shares to her, now that she's playing a role in the company, and have her gift most of them back once she isn't playing a role (retaining some out of appreciation for her past help, of course). Sorted, justifiable from a business perspective, etc.

[Alan @ BroomeAffinity]

Alphabet shares, even if they have the same voting rights, are a disaster unless there's a commercial reason for it. With a bit of careful planning it's not important anyway.

When your wife returns to work presumably she'll be taxed at the basic rate as you? You say earning considerably so I assume 40% tax for each. Therefore if she receives some of the divi rather than you, then it's the same tax cost. And remember first £5k divi is tax free for so if she remains a shareholder you get 2 of those.

If your accountant is suggesting abc shares rather than advising similar to the above, you should, as recommend above, look around.

[Alan @ BroomeAffinity]

I have read (don't know if true) that HMRC does use Companies House records to target investigations -- if so, you could even be waving a red flag saying, "Investigate me."
.

Your share structure is declared in the notes of your accounts* which are submitted to HMRC with your CT return so they don't need to even go to companies house.

*I'm pretty sure that's a disclosure requirement but don't quote me. It's half six on a Saturday evening.

[SueEllen]

Just make your wife company secretary or a director, have her do the bookkeeping, and pay her a small salary. Give her an equal number of shares, and pay out dividends to both of you.

As a company secretary she doesn't legally have to do the bookkeeping. It's up to the director(s) who is responsible for the bookkeeping though the company secretary should be given some simple administrative tasks e.g. filing Companies House return to go along with their legal responsibilities.

There have been posts on here where the bookkeeping was left to the spouse as the other director/company secretary and they couldn't cope so they just hid stuff from the other director, who was the income earner, causing loads of problems with HMRC.

Also if zafoeta has a bookkeeping system that works for him and the new accountant he chooses, he should just keep doing it and delegate other admin tasks to her. That way when his wife goes back to work there are no issues in him taking over.

[pacontracting]

As a company secretary she doesn't legally have to do the bookkeeping. It's up to the director(s) who is responsible for the bookkeeping though the company secretary should be given some simple administrative tasks e.g. filing Companies House return to go along with their legal responsibilities.

There have been posts on here where the bookkeeping was left to the spouse as the other director/company secretary and they couldn't cope so they just hid stuff from the other director, who was the income earner, causing loads of problems with HMRC.

Also if zafoeta has a bookkeeping system that works for him and the new accountant he chooses, he should just keep doing it and delegate other admin tasks to her. That way when his wife goes back to work there are no issues in him taking over.

The role of a company secretary is to ensure that the company complies with it's legal obligations. This role can also be undertaken by a director. A company secretary doesn't need to file / type / make the tea! ;-)

Simply occupying the role of director or company secretary would warrant compensation. They wouldn't have to do the books / file etc but they would be held responsible if these tasks were not done - hence the justification for the salary.

To the OP - I'm always of the opinion that if you want to bring your wife on board, set up a new company with her and you as shareholders (base the split on how much work / reward you'll expect to put it / receive and ensure the shares are ordinary, of the same type with voting rights etc) and both of you as directors. No reason why you can't keep your current company. If and when she decides to go back to work, start trading from your current company again and close down your joint one. Both of you setting up a company from scratch would mean no gifting, no settlement etc as you were both in it from the beginning.

No reason why you can't have more than one company on the go at the same time, each with a different reason for existing.