Issuing shares to partner

Hiving off Business and giving shares to girlfiend

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I have a client in the cosmetic industry.  There are two sides of the business one is treatment is carried out in the UK and the other treatment is carried out in Turkey where UK customers are sent to Turkey. Both businesses are within his Limited company where is the sole director and shareholder

We suggested from a risk and brand point of view which many of his competitors are doing to have a seperate company just catering for UK customers who have treatment carried in Turkey.  

However,  he has suggested to add his long term girlfriend as an equal shareholder.  His girlfriend would not be involved in the business. He would be the sole director. 

Wouldn't this be perceived by HMRC as tax avoidance ? He would save on tax on dividends though an additional associate company may well increase the company corporation tax liability.

Replies (15)

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paddle steamer
By DJKL
02nd Oct 2023 11:34

What about Turkish tax authorities?

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Replying to DJKL:
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By JimLittle
02nd Oct 2023 11:53

I don't they have an exposure though I have not checked the double tax treaty as they do not have a permanent establishment in Turkey as the work is subbed out to Turkish Doctors / Hospitals

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Replying to JimLittle:
paddle steamer
By DJKL
02nd Oct 2023 12:28

Not sure matters are that crystal re what may or may not create a PE, then again not my area of expertise, just a little exposure when Number One Son was contracting in Frankfurt (And he paid pros to ensure matters were tidied)

This article/website piece mentions matters I suspect worth considering, just saying Contractor so no issue seems somewhat bold.

https://contractortaxation.com/can-hiring-independent-contractors-trigge...

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Routemaster image
By tom123
02nd Oct 2023 16:39

Does the girlfriend know what liabilities she is exposing herself to? (potentially)

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Replying to tom123:
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By JimLittle
02nd Oct 2023 17:09

Yes I would think so the business is very successful but there is always the risk carrying out cosmetic surgery overseas

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Replying to tom123:
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By David Ex
02nd Oct 2023 17:37

tom123 wrote:

Does the girlfriend know what liabilities she is exposing herself to? (potentially)

If she’s just a shareholder, shouldn’t be any, should there? That’s IF, of course, ….

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Replying to David Ex:
Routemaster image
By tom123
02nd Oct 2023 18:47

I suppose we would hope so, but, (and we have seen on Aweb before), the partner ends up putting all their worldly goods into a business over which they have no control, or experience, etc etc.

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By Tax Dragon
02nd Oct 2023 18:59

JimLittle wrote:

He would save on tax on dividends....

They wouldn't be his dividends - and if he's telling you otherwise I don't think your first thought should be "that might look a bit like avoidance to HMRC."

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Replying to Tax Dragon:
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By Tax Dragon
02nd Oct 2023 19:00

Additional: be aware that the Arctic Sytems argument only works for spouses.

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By Yossarian
03rd Oct 2023 07:44

There is also the question of, if his partner becomes his ex-partner, how's he going to get half of his company back?

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By bernard michael
03rd Oct 2023 09:27

Make sure there's a share holders agreement in place. It would be very useful were he to break up with the lady. It should also reflect any different company/tax law between Turkey & the UK

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By kbrajput
04th Oct 2023 10:41

Hi,
Share transfer involves lots of issues.
1. Business Value
2. Value of total transfer
3. Capital Gain Tax, if any
4. Changes to PSC, if limited company
5. Informing bank, hmrc etc.

There are commercial issues as well.
1. Share holder's agreement
2. Control of the business

In my view, many clients hear lots of bad advise and bring it to the Accountant and simply expect to be done straight away. I suggest you meet the client and ask him to inform you the purpose and objectives of the share transfer. Then advise him the no of areas he/she needs to consider and risk involved.

Make sure that you have a proper engagement terms signed for this as this work is risky and client will not hesitate to blame you if anything (e.g. separating from his girl friend) happens and he suffers loss of investments.

Hope this helps.

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Replying to kbrajput:
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By JimLittle
05th Oct 2023 11:20

Thanks but this is not a share transfer but setting up a new company with adding his partner as a shareholder

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By I'msorryIhaven'taclue
05th Oct 2023 12:46

Ahha, so " he has suggested to add his long term girlfriend as an equal shareholder" to Newco Ltd, not to the existing company.

And the plan is to transfer a chunk of (his) existing company's business to (his'n hers) Newco Ltd.

Might that not amount to dressed-up income shifting?

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Replying to JimLittle:
Stepurhan
By stepurhan
05th Oct 2023 13:09

There is still a transfer of value that is being put at risk, albeit in a new company not in the existing one. You also still have the issues of a share agreement and control.

Don't let the tax tail wag the business dog.

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