Adding a foreign shareholder

[northernladuk]

Thanks! that makes sense! thanks for your advice!

Market value is a question though. The sahres are going to bring in 10's of thousands of K in the next three years so market value is going to be far more than he/she is willing to pay and defeat the whole point of the exercise. No one in contracting ever pays market value so don't think this is going to work at all.

And even 51/49 as a majority shareholder doesn't mean it isn't tax evasion.

[kazh]

Market value is a question though. The sahres are going to bring in 10's of thousands of K in the next three years so market value is going to be far more than he/she is willing to pay and defeat the whole point of the exercise. No one in contracting ever pays market value so don't think this is going to work at all.

And even 51/49 as a majority shareholder doesn't mean it isn't tax evasion.

I see, what if the company is new and hasn't brought anything in yet? don't people become shareholders in companies they think might make money, and buy cheap shares, wouldn't this be classed as the same thing, as I don't actually know how much the company will make, 30-50k is a back of envelope guess.

[NotAllThere]

French gift tax (to non-relatives) has an allowance of €14K per year. Above that it's taxed at 60%. The French tax authorities will need to be assured of the value of the shares gifted. If you sell your shares to your friend, they have to be at a reasonable rate. Otherwise the French tax authorities may (best case) tax the rest as a gift, worst case, do you in as a tax evader. I've no idea how the French tax authorities value a privately held company with few shares, but according to this a company with a profit of 50K per year, may well be worth somewhere north of 100K.

Dividends are taxed at 30%, but your friend can opt for them to be treated as income, which can be lower. However, those rules are complicated so do your own research.

No UK tax will be due on the dividends paid to your friend.

As far as HMRC is concerned, my understanding is that so long as you give the shares freely and you have no (potential) economic benefit, they won't care. But if they suspect you do, they'll investigate.

TL;DR - give no more than €14K of shares worth of shares per year, based on a fair company valuation, pay dividends, with your friend understanding that they'll be taxed at 30% by the French (or count as income in which case he needs French tax advice from a specialist).

Still too long? The above information took me about ten minutes to find. You could have done the same; since you didn't, you need professional tax advice.

[NowPermOutsideUK]

The executive summary for the op is that if you gift shares to someone who is not spouse or a charity you will pay CGT as if you had sold them at market value

Whether he needs to pay in the country of residence is a different matter entirely. Hmrc will want cgt from you if you are Uk tax resident

The interesting follow up is what happens if you are outside the Uk yourself and gift shares and the country where you are does not charge cgt. In that case this scheme would work

The op has not told us the full story but it is clearly to use the new person as a tax mule for dividend income tax purposes and I can see why he would want to do that

[Lance]

The executive summary for the op is that if you gift shares to someone who is not spouse or a charity you will pay CGT as if you had sold them at market value

Whether he needs to pay in the country of residence is a different matter entirely. Hmrc will want cgt from you if you are Uk tax resident

The interesting follow up is what happens if you are outside the Uk yourself and gift shares and the country where you are does not charge cgt. In that case this scheme would work

The op has not told us the full story but it is clearly to use the new person as a tax mule for dividend income tax purposes and I can see why he would want to do that

Where on earth did you derive that tosh from?

[NowPermOutsideUK]

Where on earth did you derive that tosh from?

What tosh? The fact that cgt is payable on gifting shares?? or something else that you have not specified?

[Lance]

What tosh? The fact that cgt is payable on gifting shares?? or something else that you have not specified?

A gift isn’t taxed as a capital gain.
It’s taxed as a gift.

[NotAllThere]

With (in France) a gift tax of 60% for anything over ~€14K

[TheCyclingProgrammer]

A gift isn’t taxed as a capital gain.
It’s taxed as a gift.

NowPermOutsideUK is right - the disposal of an asset to somebody other than your spouse or a charity is potentially taxable as a capital gain. This is based on the market value rather than the sale price (nil in the case of a gift). It doesn't matter where the recipient is, the liability is on the giver who if based in the UK is subject to UK CGT. This is different to stamp duty which is based on the sale price so there won't be any stamp duty on a gift.

In practice you'll need to ask your accountant to help calculate a reasonable market value for the shares in your business - for most contract businesses this isn't likely to be that complicated and will be based roughly on company reserves, any goodwill etc. less some kind of discount if the shares are not a majority shareholding. Depending on what the company has in the way of assets it could fall within your annual CGT exempt amount otherwise the disposal will be taxable (I think you can claim ER on a partial disposal though so might only be 10%).

[Lance]

NowPermOutsideUK is right - the disposal of an asset to somebody other than your spouse or a charity is potentially taxable as a capital gain. This is based on the market value rather than the sale price (nil in the case of a gift). It doesn't matter where the recipient is, the liability is on the giver who if based in the UK is subject to UK CGT. This is different to stamp duty which is based on the sale price so there won't be any stamp duty on a gift.

In practice you'll need to ask your accountant to help calculate a reasonable market value for the shares in your business - for most contract businesses this isn't likely to be that complicated and will be based roughly on company reserves, any goodwill etc. less some kind of discount if the shares are not a majority shareholding. Depending on what the company has in the way of assets it could fall within your annual CGT exempt amount otherwise the disposal will be taxable (I think you can claim ER on a partial disposal though so might only be 10%).

But that’s based on the capital gain of the asset to the original owner surely?

Where as the recipient of the gift will still have tax to pay if gifted. If sold then the recipient now simply owns the shares and will be subject to tax on any income or sale in the future.