H & W have private company which already holds significant UK quoted shares, dividends received are FII.
They have no children and no need for income or likely need for funds for anything
Both have personal incomes at the circa £140k level from pensions, rentals and dividends (circa £100k each from divs)
Their personal portfolios of quoted shares have a smattering of losses and gains, such that they could each sell circa half by value of the holdings and cover the gains with the losses.
The funds raised could then be lent to the private company interest free, it could buy the shares sold (or similar holdings) or other investments. Company has no real need for cash and is itself currently sitting with cash, it holds non trade assets which make ER somewhat unlikely re its own shares but will anyway likely be held until death (and likely left to charity on second death)
Each of H & W would save 32.5% tax on the drop in dividends (Reduction each circa £50,000 re dividends) and would regain their personal allowances currently lost, so annual tax savings of circa £20,000 each
I can see no problem in effect doing a "bed and company", sell personal shares without triggering CGT liability (losses cover gains) lend funds to company, company invests, dividends in company are FII, loan if needed can be repaid by company but if not left intact.
Am I missing something really obvious that makes this a bad idea?
This is not a client (well not re tax) but more a friend.
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FII... I had to ask Mum what that was.
I think in a pure H&W scenario, where everything's 50:50 and will stay 50:50, most of the theoretical issues vanish.
Presumably there's no real need for them to do this and the net effect is to take from the tax man to give to the selected charities, so.... good result all round!
In effect, they do not spend the personal dividends but cannot see them doing vast charitable donations whilst alive.
It makes sense from a personal tax point of view and lifestyle point of view,as far as I can determine, I just had faint misgivings HMRC somewhere would have something obscure in the legislation that foiled the idea- when you are suggesting someone realises circa £2.5 million of investments you do not want to have missed the obvious, especially when a friend.
The main risks I have spotted are bid/offer spread, stamp duty if repurchase and time out of market.
In effect, they do not spend the personal dividends but cannot see them doing vast charitable donations whilst alive.
Worth thinking about though. It might trigger an honest, though not an easy, conversation.
You are correct but human nature has us all trying to hold onto what we have as we do not know what tomorrow will bring.
This goes to extremes, a couple of years before my father died he eventually let me have sight of his investments (He was about 83 at the time and I was 50, so maybe he thought I had finally grown up enough to review his investments and was no longer a child)
I went through them, mainly slanted for income (His income had taken a hammering post 2007/2008 re very poor bank interest rates), but he also had a pretty chunky holding of some global growth unit trust which paid virtually no dividends, so I asked why he had this one, its purpose in his portfolio etc? His response was he had to have a portfolio with growth options.
My response was why, at 83 he could have started cashing in the investments and living on the capital and he would have had enough to see him through, he was compromising his current standard of living (reducing his income) for a very distant future which frankly he was unlikely to see, but a lifetime habit of frugality, capital and wealth preservation, is hard to change.
An alternative would be to engage an asset manager who can build a portfolio to meet their requirements, capital growth and not income.
I certainly cannot be bothered with asset managers (parasites) and my friend, I think ,will be of similar inclination.
In addition the catch is like me he tends to want to invest for dividends, it is also how I slant my own investments albeit I use Investment Trusts whereas my friend tends to buy more FTSE 100 shares.
The catch is they need none of the income or growth and do not need the assets and they do not want to leave it all to nieces and nephews as too much money , in the wrong hands, can be bad for people.
The company scheme sort of works and it is a convenient vessel to throw all the bits and pieces they do want to go to charity, then all they need is direct in their wills that the shares in the private company are left to their spouse failing which they go to x charity.
Yes it's good isn't it? Much cleaner than a FIC.
One point where care might just be needed comes from the slightly odd wording in s251(1), but on the bas8s that the debt will never be called in in life, it's a pretty minor point at that.
Yes, this works as has been mentioned here many times before and is one of the few schemes HMRC has not blocked. It will get better next year of course when CT rates go to 17%.
Thanks everyone for the reassurances, much appreciated.
I am having a chat later today re this and a couple of other matters with the " Pros from Dover " we use re our tax planning and will try to tee up a meeting for my friend with them in May, once all the Easter holidays dust has settled; come this Friday Edinburgh will be as described by the Specials so nothing will happen until the schools go back on the 23rd.
