Swapping dividends for Rent

Swapping dividends for Rent

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I have an unusual scenario that I would appreciate some learned input on;

A non-resident land lord allows his brother to live in his UK rental property for which he currently gets MV rent.

The brother (the tenant) owns 100% of his personal consultancy company (but the company does not pay the rent on the property).

It has been suggested that the land lord should charge a peppercorn rent (or no rent) to his brother and that he should instead acquire a shareholding (probably a restricted “B” shareholding) in his brothers company and receive dividends instead of rent.

There would be an income advantage to both individuals as the brother is a higher rate tax payer the non-resident is not entitled to a UK PA.

I assume that the non-resident brother trusts the other brother to pay the required dividends.

Any thoughts on how this may fall foul of Anti Avoidance?  I can’t see how S447 would be applicable? GAAR?

Many thanks

Tom.  

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By taxhound
17th Mar 2014 19:35

settlements legislation

I think the settlements legislation may apply?

http://www.hmrc.gov.uk/manuals/tsemmanual/tsem4325.htm

But would be interested to hear what others say....

 

 

 

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By TomNicholls
14th Mar 2014 09:25

Thanks Taxhound

It would seem that perhaps the settlements legislation would apply (they are not husband and wife) and the “tenant” brother would benefit from the “settlement”, although this could be dressed up as a return on investment.

I also did wonder about the actual value of the shares as, although they would be restricted, they would (I presume) essentially be cumulative preferential shares in terms of rights to dividends? A CGT or a “transactions in securities” issue?  He is giving / selling / distributing a capital asset to obtain an income tax advantage?

Thank you for time.

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