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How many shares can you transfer to your wife?

Where is the guidance to know how many shares as a maximum can you give to your partner?

Didn't find your answer?

This is my first post so "hello" to everyone in advanced. 

I am ACCA but I work as an internal auditor so my knowledge of "practice accounting" is limited. 

I have a friend who wants to establish a limited company that will provide IT services. It will be just him working as a contractor.
Given I am the only accountant he knows, he asked me if he could put 100% of the company shares under the name of his wife, given she does not work and he is fully employed there would be tax savings as a couple. 

Before I referred him to a professional practice accountant I tried to solve the quetion for him.

Although I warned him of the disadvantages of this share structure in the case they divorce in the future, I could not find any information about the allowed or disallowed share structures in a limited company. I have seen on internet some examples of 100% controlling shareholders transferring 50% shares of their limited company to a partner, but I have not found any case where they actually transfer 100% of the shares. 

Is there any rules to follow on the share structure of a 1 employee company? And also where could I find this information (ei Companies Act, HMRC guidance, etc) 

Thank you very much.

Oscar

 

Replies (8)

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By Tax Dragon
07th Aug 2020 09:35

Hello Oscar.

OGY wrote:

Before I referred him to a professional practice accountant I tried to solve the quetion for him.

Why? Did you think the professional practice accountant wouldn't be able to?

To answer your question... there is no such guidance. That's why you can't find it. If he wants his partner to have 100% (and his partner accepts the shares), he can do that. It's not illegal!

It's possible that dividends on those shares will be taxable on him, but that's a whole different question. I would suggest you refer him to the practice accountant for advice on that issue.

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Replying to Tax Dragon:
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By OGY
07th Aug 2020 12:02

Hello Tax Dragon

Besides it seems from your response the best option is to ask to a tax accountant you still took the time to reply in detail, so thanks a lot for your time.

The reason why I tried to solve it on my own first was due to I thought it could be a straight forward answer if I had a rule or Law in front of me.

Funnily enough I have just called my friend to tell him he has to contact a practice accountant and he has told me he had already contacted an accountant yesterday (I was not aware of this when I posted it).

The accountant has told him that an 80% for him / 20% for his partner would be ok although he did not explain to him why which left my friend with some doubts.

So he is thinking of contacting a second accountant now!

I will update the post next week if I have any update.

Thanks to the other people that have replied too.
Oscar

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Replying to OGY:
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By Tax Dragon
07th Aug 2020 12:16

The (income) tax treatment won't depend on the split; 80/20, 50/50, 0/100... it's simply not tested in (income) tax law - at least, not anywhere that I can think of off the top of my head. [I specify income tax because there could be capital tax consequences to different splits. And as DJKL says, there may well be other issues that are not even being considered at the moment.]

If I was your friend, I would not take free advice whether in a phone call with an (unengaged) accountant or from a forum (this or others).

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By tom123
07th Aug 2020 10:36

Bear in mind the adage "if something looks too good to be true, it usually is".

Like you, I am an 'industry' accountant, and learned a long time ago not to go anywhere near even hinting bits of advice to friends or family.

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Hallerud at Easter
By DJKL
07th Aug 2020 11:18

The contractor facet of the company's operations may add a further layer of complexity to any solution offered/proposed.

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By OGY
26th Aug 2020 18:48

Hi, just to give an update and thank everyone who posted.
My friend went to a professional accountant who charged him £100 and assessed his situation.
The accountant asked him several questions about his family and the future of the business and he decided the most suitable company structure was 50/50.
He mentioned as some of you did too, that the structure has to be taylored to the needs of each individual so no straight forward answer.

Thanks again.
Kind regards

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Replying to OGY:
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By tom123
26th Aug 2020 21:04

Not really sure that will fly, however.

Still, you won't get the fallout, so that's good.

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Replying to tom123:
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By OGY
26th Aug 2020 22:10

Thank you Tom. At least looked more professional than my first comment to him telling him "I think 100% to your wife is allowed but let me research about it" :)

Thank you all and I leave the post as closed.

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