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informal trust

dividends declared on who?

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Mr A owns 100% of C Ltd. 90% of 'his' shares are held on trust for Mr B. (There's an informal bit of paper with an agreement that Mr B will get the 90% on sale of C).

The main purpose of this was so that A could get all the reserves in dividends (so divi waiving not an option) but B retain any proceeds on sale.

The question has been rasied by the bank - shouldn't B be taxed on 90% of the divs? Is there a way around this?

Thanks

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24th Jun 2019 17:32

I think that is OK if that income/capital split was agreed at the very outset as mentioned here before (it's odd for the bank to be questioning such things - we all know banks know next to nothing about such things).

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to Justin Bryant
24th Jun 2019 18:06

Ltd is opening an account with a new bank and they have consulted their ‘tax team’ as they want the understand the ‘UBO & reason for the share structure’. Mr B is the UBO

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24th Jun 2019 22:20

Does the arrangement involve a settlement (as defined for income tax purposes)?

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to Tax Dragon
24th Jun 2019 22:27

I suspect that the arrangement can involve whatever is needed for the situation to be kosher.

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to atleastisoundknowledgable...
24th Jun 2019 22:33

Was Mr A a 100% shareholder (as a motheaten dragon might understand that expression) before Mr B came along?

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to Tax Dragon
24th Jun 2019 22:48

No, Mr A and Mr B set up the co together. B said “hey, A, can you have my shares until we sell, so it’s cleaner for the dividends etc?”

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to atleastisoundknowledgable...
24th Jun 2019 22:52

Why?

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to Tax Dragon
25th Jun 2019 00:24

The 90/10 split was agreed. B wants to withdraw his % my way of invoicing by his foreign company. A wants the salary/div split. If the shares are 90/10, then there’s an issue with not enough reserves to waive B’s dividends.

Eg ‘profit’ of 100 to share. B Ltd (say), invoices 90. A has salary of 8. P&L reserves now 2. A is owed 2, but for A’s 10% to be 2, there needs to be 20 reserves, for B to waive his 18.

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to atleastisoundknowledgable...
25th Jun 2019 09:03

The tax treatment of the 2 would not be my first concern with that arrangement. And it's a bit sad that it's taken a bank for even the question about the 2 to have arisen.

FWIW, I agree with the bank. 1.8 of the 2 is taxable on Mr B.

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to Tax Dragon
25th Jun 2019 09:13

“FWIW, I agree with the bank. 1.8 of the 2 is taxable on Mr B.”

Ok thanks.

Bizarrely, when your post was emailed to me, all of the numbers in it (1.8,2) were the number 8 !!!

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26th Jun 2019 12:04

Based on my experience, If there is not a correct written document there is no Trust. Except and unless you want to get into a £lengthy court or tribunal battle.
1)
With HMRC I have had this a couple of times between husband and wife situations.
The dividends are assessed on the person whose name is on the shares, full stop.
Similarly on sale of shares.
2)
Many years ago, when the inevitable dispute arose, the court said: The informal letter is properly signed and witnessed with copy to both parties, it belongs to the person on the title deeds. In this case the share certificate and register, and as filed at Co Hse.
Reading between the lines, what is the problem over writing out a formal document, setting out the relationship, and have it properly dated, signed and witnessed?
Including attaching a copy to the company file at Co Hse?
The bank is correct in questioning the matter. If the company is worth anything, the bank does not want to be involved in a future ownership dispute.
Informal commercial agreements are not worth used toilet paper, when money is on the table.
last but not least, what happens if A is -Heaven forefend- knocked over by a bus?

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to David Gordon FCCA
26th Jun 2019 19:24

Rubbish. It is trite law that no signed document is needed. I see lots of cases where a bare trust is found without writing – including re land e.g. see para 177 of the recent case below (I guess it was a common intention bare trust in that case):

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11061/TC0...

Paras 88 & 89 of the case in the link below deal with non-written trusts over land (which can be express trusts it seems if fraud is being used re the lack of writing):

http://www.bailii.org/ew/cases/EWHC/Ch/2019/915.html

I could go on, but the most recently publicised plain vanilla case here is Tang v HMRC 2019 UKFTT 0081 TC. See: https://www.step.org/news/bare-trust-can-exist-without-trust-deed-says-u...

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26th Jun 2019 12:07

Oops!!
Freudian slip-
I missed out the word "Not" attached to properly signed.

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to David Gordon FCCA
26th Jun 2019 12:47

David, for s625 ITTOIA to be in point there merely have to be any circumstances in which the property or any related property is payable to the settlor.

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26th Jun 2019 15:00

Surely a simple 2 classes of shares would have solved this?

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to Jon Pickles
26th Jun 2019 16:08

Apparently B's foreign tax adviser (B is non-resi) advised that he could* hold any UK shares. ?

EDIT: * couldn't

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26th Jun 2019 15:47

Your AML paperwork on this case must be pretty impressive.

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to Tax Dragon
26th Jun 2019 15:59

... let's just assume it is, shall we?

Hands up, AML admin is the worse (worst?) bit of my practice.

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27th Jun 2019 08:54

If the name on the share certificates pays the tax then Barclays Stockbrokers can pay all the tax on my dividends.

Yippee!!

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28th Jun 2019 11:13

Dear Northeast accountant
Don't be a silly boy.
You know very well that where the bank or any third party holds shares as Nominees, they are, in law, agents for the person, they provide HMRC with the names of the persons concerned, and the bank provides the person with certificates , setting out information to go on the ITR.

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