Employment Related Securities and Dividends

Utilising the £5k tax allowance

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Client is considering creating B shares (non voting) and giving them to employees. Element of bonus to be paid via these shares and hence tax free up to £5k. I am concerned that it will be caught by ITEPA 2003 s421B and subject to Income Tax accordingly. Can anyone either confirm my view or tell me i am wrong please?

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By pacta
30th Aug 2016 14:40

I think you're right.

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By pacta
30th Aug 2016 14:40

I think you're right.

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By Igor Nankun
30th Aug 2016 14:56

I don't think the issue arises under s.421B. I think the issue arises under the Court of Appeal decision in PA Holdings and the B shares will be regarded as a mere device to make a payment that has the character of earnings, rather than that of a return on share capital.

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By johngroganjga
30th Aug 2016 14:59

Yes but what are the rights attaching to them. You say they are non-voting, and they must be eligible to receive dividends, but what about capital?

If the shares have no rights they have no value, so your question is academic.

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RLI
By lionofludesch
30th Aug 2016 15:07

What a carp piece of legislation this is!!

Reminiscent of Gordon Brown's £10000 zero rate Corporation Tax band.

Meanwhile we have a Marriage Allowance transfer that's so complex in its anti-avoidance that the folk it's aimed at can't work out how to claim it.

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By Mark Wrigglesworth
30th Aug 2016 15:12

They have no right to capital either, to answer Johns question.

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7om
By Tom 7000
06th Sep 2016 11:12

My thought is the market value of shares is the net present value of the future earnings stream which is the dividends?
So my guess is you would pay tax on them as employment related securities up front.

I dont think I would feel comfortable promoting this idea to our client base. I can feel an awful lot of tax investigations for a tiny bit of NI saving.

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Replying to Tom 7000:
RLI
By lionofludesch
06th Sep 2016 11:24

Quote:

My thought is the market value of shares is the net present value of the future earnings stream which is the dividends?

Nice in theory, but what is the future dividend stream ?

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