Shareholder split and issues with accountancy firm

[stek]

Agree, Seems a bit suss to me, the OP states that the reason he gifted 18% of the shares to this mystery individual (I'm guessing not the missus?) is that he wanted to return the favour as said individual was 'influential in OP going contracting and OP wanted to pass on some reward', I'm sorry but if that's the case why do you think the taxpayer should part fund this philanthropy? You can't just make any old Tom, Dick or Harry a shareholder so that you can utilise their tax free allowance and hope HMRC don't notice (the Arctic case aside)...

OP said this too in original post.

Thought I had managed to extract extra funds in form of tax free dividends from ltd through additional shareholder.

More or less gives the game away....

[TheCyclingProgrammer]

Can we be pragmatic here? Settlements legislation is least of OPs concern. If they have been using the shareholder purely as a means of saving tax by diverting the dividend income back to themselves then quite clearly they would be caught under s624. But the chances of HMRC investigating this are incredibly small. HMRC haven't shown any interest in pursuing these arrangements in years.

OPs bigger concern is getting his paperwork sorted out and making sure he hasn't taken illegal dividends and making sure they pay whatever tax is due.

[jmo21]

You can if said shares and dividends do not make their way back to you. HMRC can't stop you from giving away a share in your company if you want to.

The only people you can't do this with are your spouse, unless the exemption applies, or your children. The settlements legislation generally doesn't come into play with anybody else. Even HMRC openly state this.

I do wish people would make some effort to understand the legislation if they are going to bring it up.

that's not what he said though is it? He specifically qualified it with.....

You can't just make any old Tom, Dick or Harry a shareholder so that you can utilise their tax free allowance and hope HMRC don't notice (the Arctic case aside)...

[kal]

You can if said shares and dividends do not make their way back to you. HMRC can't stop you from giving away a share in your company if you want to.

The only people you can't do this with are your spouse, unless the exemption applies, or your children. The settlements legislation generally doesn't come into play with anybody else. Even HMRC openly state this.

I do wish people would make some effort to understand the legislation if they are going to bring it up.

So following your reasoning if I want to support my poor old retired parents financially all I need to do is give them a share of my company and I can then pay them dividends and minimise my tax exposure, the alternative being supporting them out of my taxed income... really?

[TheCyclingProgrammer]

So following your reasoning if I want to support my poor old retired parents financially all I need to do is give them a share of my company and I can then pay them dividends and minimise my tax exposure, the alternative being supporting them out of my taxed income... really?

Aside from the risk of HMRC actually pursuing it and seeking to apply the legislation in the first place being quite low, then if the settlor doesn't retain an interest in the gifted property (or derived income) then its very unlikely that the legislation would apply.

Like I said, the legislation only specifically catches gifts between spouses/civil partners (unless the exemption criteria are met), children and situations involving trusts.

The whole concept of "retained interest" is open to interpretation so you only have existing case law, the legislation itself and HMRC's own view of the legislation (as evidenced in their guidance manual) to go on but HMRC's own guidance gives some pretty clear examples of where they think there is retained interest (e.g. gifts with conditions attached) and where there isn't and their view is: arrangements whereby there are conditions attached to gifts that would mean the gifted property or income being returned to the settlor would constitute "retained interest". Genuine gifts without conditions where the settlor gives up all rights and entitlements to the property and derived income would not.

So read the law and HMRC's guide book and make your own mind up. I'm not going to repeat in detail what I've already posted on here several times before.

I repeat: the relatively low risk of HMRC applying a piece of legislation which, in theory could apply, despite not showing a lot of interest in pursuing this kind of thing in the last 6 years, is the least of OP's concerns.

[TheCyclingProgrammer]

that's not what he said though is it? He specifically qualified it with.....

Fair point; if the implication was that you were doing it solely as a means of extracting further income (and that income would make its way back to you), then no, you can't do that (although you still might get away with it).