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Setting up Ltd Co with spouse having 50% of shares

Setting up a new Ltd Co with non working spouse having 50% shares

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I am aware that HMRC do not like income being shifted from spouse to spouse but if a new Ltd Company is set up with the initial shareholding split 50/50 (so dividends can be split 50/50) between 2 spouses one of whom works in the business but the other doesn’t  (rather than shares being transferred to a spouse at a later date) is that generally considered to be okay still?

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By thomas34
24th Feb 2019 08:13

No problem providing they're ordinary shares. Have a read of Jones v Garnett (Arctic Systems) which took years to reach the House of Lords if I recall correctly.

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By Tax Dragon
24th Feb 2019 10:03

Folk seem to think HMRC lost Arctic Systems. HMRC seems to think HMRC lost Arctic Systems. Two key points though: contrary to what the taxpayer argued (and as the CoA had found), the arrangement was a settlement to which s624 etc applied; because s624 etc applied, there wasn't a tax charge because s626(3) prevented that.

Whilst accountants continue to think Arctic Systems means they can do what they like, and HMRC continues to cower, situations not protected by Jones have surely cropped up in abundance. Such cases may pay the price if ever HMRC realises the powerful tool Garnett gave them.

Make sure yours isn't one of them.

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Replying to Tax Dragon:
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By Vile Nortin Naipaan
25th Feb 2019 11:09

I think HMRC lost. I think HMRC were arguing both that (i) s 624 applied, and (ii) s 626(3) didn't. They lost on one of those points, IIRC.

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Replying to Vile Nortin Naipaan:
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By Tax Dragon
25th Feb 2019 17:38

Yes, but some accountants, lacking the Vile wile and guile, seem to talk and act as if HMRC lost on both counts. (I suggest they don't even know there were two counts.) HMRC won one and lost one.

I think wife should have her own shares, for example. 50/50 on all shares might not work (the OP has persistently been ambiguous on what he means).

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By arthurallan
24th Feb 2019 15:45

Are there any particular things to consider to avoid getting things wrong in this situation?
Basically my client wants to set up a Limited Company to offer consultancy services (to a number of potential clients); the Company has not been formed yet. His wife won’t be involved in any significant way with the business but is there any reason why she shouldn’t be a 50% shareholder from day 1 and receive 50% of the dividends (by contributing say £5 towards initial total share capital of £10?).
Is there anything particular that should be done in this situation to get things right and avoid falling foul of HMRC?

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Replying to arthurallan:
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By Waves
24th Feb 2019 16:00

arthurallan wrote:

Are there any particular things to consider to avoid getting things wrong in this situation?
Basically my client wants to set up a Limited Company to offer consultancy services (to a number of potential clients); the Company has not been formed yet. His wife won’t be involved in any significant way with the business but is there any reason why she shouldn’t be a 50% shareholder from day 1 and receive 50% of the dividends (by contributing say £5 towards initial total share capital of £10?).
Is there anything particular that should be done in this situation to get things right and avoid falling foul of HMRC?

I would recommend your client seeks the advice of a competent tax adviser to “get things right and avoid falling foul of HMRC”.

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Replying to arthurallan:
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By Tax Dragon
24th Feb 2019 17:37

Your question is too open and invites responses such as that one from Waves. So let me ask you one: how will the facts differ from those in Arctic?

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By arthurallan
25th Feb 2019 07:15

I’ve had another long look at Arctic Systems and it still looks like the end result of 3 years of legal process was basically that it is okay for shares (ordinary shares) to be split 50/50 between spouses so dividends can be shared even though it is just one of them doing most the work.
I read that in the aftermath of the case HMRC wanted the government to change the law to stop this happening but I can’t see anything to indicate this happened so my understanding is that Arctic still stands.
The situation I am looking at is that the Company has not been set up yet but will be in the next couple of months. The shares will be split 50/50 between spouses. The husband will do most of the work and earn all the income. They may be paid up to the approx 8,000 a year salary and will both receive equal dividends. The only real difference with Arctic is that I think that Mrs Jones in Arctic did some definable admin and accountancy work to help her husband.
So my 2 questions are
Is the ruling in Arctic still current so shares can be safely split between spouses?
Is it critical that the spouse actually does some work in the business for the ruling in Arctic to apply similarly here.
I noted somewhere that it would be sensible for the spouses dividends to be paid into separate accounts

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Replying to arthurallan:
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By Tax Dragon
25th Feb 2019 08:18

Arctic is still "current", yes.

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Replying to arthurallan:
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By chicken farmer
25th Feb 2019 09:56

You say "They may be paid up to the approx 8,000 a year salary and will both receive equal dividends"

Are you proposing that wife is paid £8,000 for doing nothing?

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By clark.hall
25th Feb 2019 10:56

I imagine the wife would be paid her salary for her position as secretary or director.

Ensure the shares have rights to dividends, rights to vote and equal share of proceeds on wind up and you will not fall foul of the settlement provisions.

How else are most OMB's set-up?!

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Replying to clark.hall:
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By atleastisoundknowledgable...
25th Feb 2019 17:42

clark.hall wrote:

.

How else are most OMB's set-up?!

The spouse would have non-voting B shares?

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Replying to atleastisoundknowledgable...:
By JCresswellTax
26th Feb 2019 09:17

Well they will be [***] then!

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