I have a client who is a sole director and sole shareholder with 1 share.
His works for the company part time on at a fair rate of £10,000 a year.
At present the director draws a small directors salary and then dividends up to the higher rate of tax leaving any excess in the company each year. This is now building up.
Tax planning going forward with dividend tax changes and the retained profits increasing year on year would there be any implications to the following.
1) Convert the share capital from 1 share (100%) to 100 shares (100%) - would the shares need to be valued or can the new shares just be issued as it represents 100%?
2) The director sells 45 shares (personal reasons for the 45%) to his spouse personally so that the inter spouse transfer does not attract capital gains tax.
3) Issue dividends each year on the basis of 45/55.
4) The commercial reality is that the spouse and the director still receives the same salaries as prior to the transfer/sale of shares. And the spouse receives investment income from the shares that she has bought.
Are there any implications to this that i am missing?
Many thanks in advance.
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Replies (9)
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I see no problems with what you propose. It is probably simpler to just issue 99 shares to the existing shareholder, for him to then give 45 of his shares to his wife.
There is no capital gains consequence and the shares will clearly not have been issued by reason of the spouse's employment.
The gift of the shares is not the gift of wholly a right to income, so provided dividends are paid in proportion to the shareholdings and waivers are not used, the settlements legislation cannot apply.
Is this a £1 for 1 nominal share company?
Edited comment as it was seriously flawed.
See comment below.
The gift is a necessary step. The fact that Mrs Jones paid nominal value for her shares was the one thing that Arctic Systems nearly fell down on. If the last respondent understood the CGT rules on intraspousal transfers, they would realise that the transferee spouse inherits the transferor spouse's base cost, which is [***] all, in any event. How the wife gets the shares is also irrelevant for ER purposes.
I agree, have checked - Settlements legislation.
The gift is a necessary step.........which is [***] all, in any event. How the wife gets the shares is also irrelevant for ER purposes.
I bow to you greater knowledge about the gift by way of transfer. My simple solution has a serious flaw. See TSEM4205 Settlements legislation
Thank you for that Portia, There is also an accountingweb link to the Artic Systems judgement July 2007.
Your other points were understood of course.
I have edited after learning.
Thank you all for the comments. Accounting web is certainly a valuable tool in learning/staying up to date.
Very good reading. This will save many sole director's tax having to pay a big chunk of personal tax or at least reduce the amount of personal tax they have to pay legally. Would there be an issue of gifting further shares to other family members over the age of 18? I can't see why there would or have I missed something?