Can a trust hold shares in trustee's own company?

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Heres the scenario

Client wants to shift ownership of his own company by using his parents to acquire 51% of the shares, and then settle the shares into trust with the beneficiaries being his children (ie their children). Client will be a trustee and use trust money to pay beneficiaries school fees.

Neat idea or not? All simple expanations of pitfalls gratefully received.

Replies (7)

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By johngroganjga
10th Apr 2018 15:40

Presumably you mean “their grandchildren”.

It would help if you would explain what benefit the client is seeking to obtain from these arrangements.

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Replying to johngroganjga:
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By alisonis
10th Apr 2018 15:47

yes, the settlor's grandchildren and trustees children being one and the same.
They are doing this for corporation tax reasons to change the structure of the group, but I am looking at the tax position of the trust, and my client as trustee.

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By Ruddles
10th Apr 2018 15:53

But it won't be his company will it? He might have some shares in it still (who will own the other 49%?) but I can't see anything to prevent the trust holding the shares as you suggest.

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By leeanthonyblackshaw
10th Apr 2018 18:42

Risk of s629 ITTOIA 2005 applying to the trust payment of school fees, if parent regarded as indirect settlor.

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By Montrose
11th Apr 2018 22:02

leeanthonyblackshaw is quite right.

There are two issues
1] The Client is a settlor [ if not the sole settlor]

2] The client is the person responsible to the school for the fees, not the children. To avoid this the trustees would have to contract with the school to pay the fees, and not merely discharge the client's liabilties.

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By alisonis
12th Apr 2018 09:55

To clarify, the client would not be the direct settlor, this would be his parents.
The fees would be being paid by my client as trustee to the school.
I agree care would have to be taken to ensure the indirect settlor rule does not apply.

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By Tax Dragon
15th Apr 2018 23:26

Over what timescale and what is the value of 51%? You mention CT and a group.

Has anyone considered s421B(3)(a) ITEPA 2003 in this context?

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