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External investment and deeds of trust

How do these actually work and any tax consequence

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Rebecca's recent write up of a  share ownership case, and reader responses to it, come on the day I learn from a client that his personal company has had large inward investments, from 2 sources, in return for equity on a "deed of trust" basis.

I've yet to establish the details and degree of formality, but do these arrangements stand up well to scrutiny?   I am aware declarations of trust are common for differentiating legal and beneficial ownership of property between spouses,  but haven't come across for shares with unrelated investors in my small practice.

 I'm wondering about any tax, CGT and stamp duty implications of a couple exchanging beneficial ownership of their shares for funds into their company (bizarrely accounted for on a company invoice, one with VAT charged).

But this feels more like the tens of thousand pounds of 'Angel' investment into the young company. Should the investment be treated as proceeds received personally and then lent to the company (with no new share issue, I can't see that SEIS is in play.)

If this is business angel investment, is this a typical way it is structured?

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By pacta
22nd Jul 2016 15:35

Not entirely clear from your write up who's bought what via what vehicle for what value and with who's money?

Is it that shares have been issued to a trust? Is it that the shares are held by the owners but on trust for the investor so they can stay hidden?

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By JimH
22nd Jul 2016 16:59

Thanks for responding. I'm not clear on the legal form either but:

The company has received the money into its bank account, say £20k from Mr X and £20k from Y Ltd.

The married couple who formed the company still have the shares.

When I asked the client what the 2 funds providers receive in return for handing over some £40k of cash between them, the response was equity, by declaration of trust. Sounds odd to me, so will need to get to the bottom of it - no answer yet from client.

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Replying to JimH:
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By pacta
22nd Jul 2016 17:35

You'll need the trust deed then.

You need to understand if your client is the trustee as well as the settlor and to understand the terms of the trust too.

It sounds as though there could be a tax charge on the transfer of beneficial ownership to trust but likely overridden by gift relief.

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