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Settlement Legislation

Alphabet Shares

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Do you recommend to your clients to use an Alphabet Share setup, and has anyone ever been challenged under the Settlements Legislation?

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By atleastisoundknowledgable...
22nd Nov 2019 16:09

I use A&B for all my H&W clients.

I have AB&C for my company (C=children). C dividends are only £100ea pa.

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Replying to atleastisoundknowledgable...:
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By The Dullard
22nd Nov 2019 16:17

No problem there then.

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By JDBENJAMIN
25th Nov 2019 09:45

I never recommend alphabet shares, but I have created them where the client has asked for them. I do warn them about settlement legislation first. HMRC have never raised any queries over such shares.

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Caroline
By accountantccole
25th Nov 2019 12:39

Use them all the time - not had an issue.

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By SteLacca
25th Nov 2019 12:52

Motive is a big factor. Provided that the use of alphabet shares is not for the purpose of income shifting to reduce the tax liability HMRC would have a hard time pursuing.

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Replying to SteLacca:
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By Tax Dragon
25th Nov 2019 13:45

SteLacca wrote:

Provided that the use of alphabet shares is not for the purpose of income shifting to reduce the tax liability HMRC would have a hard time pursuing.

The thought occurs that that is atlea's only purpose.

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Replying to Tax Dragon:
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By The Dullard
25th Nov 2019 13:59

Yes. Teasing both s 624 and s 629 simultaneously.

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Replying to The Dullard:
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By Tax Dragon
25th Nov 2019 16:45

I wonder whether some other legislation also gets a tickle. You no doubt know of HMRC's "alphabet soup" example in ERSM60030. Croner-i says of this example "One might question this interpretation, but there is little doubt that one way or another (including by virtue of the basic employment income charging provision in s. 62), such artificial arrangements will become subject to tax as employment income. HMRC increasingly have case law to back their approach here… This is particularly harsh legislation as, in theory at least, it could lead to double taxation. The dividends will still remain taxable, even where these charges are invoked."

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Jennifer Adams
By Jennifer Adams
26th Nov 2019 12:43

I use them quite a lot and have never received a query.

Here is an article on this very subject. Written a while ago but I've checked it and it's all still relevant.

'Alphabet shares - Get it right'

https://www.accountingweb.co.uk/business/finance-strategy/alphabet-share...

The text covers the 'Arctic Systems ' case which should be read and gives some tips and practicalities.

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