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Transfering shares to family

Transfering shares to family

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I have a client who owns a semi-recently incorporated software development company, y/e 30/6/21. Turnover per annum is expected to be around £150K and profit of around £80K. The company has 10 ordinary shares and has 2 A shares with exactly the same rights to distribution, voting, and assets on wind-up. The two additional A shares were issued on 9/8/20, shortly after incorporation. One shareholder owns all the shares and is also the only director.

The director wishes to gift £15,000 total to his mother and father (married). He wishes to transfer one of his A shares to his mother and then declare a £15,000 dividend for the A shareholders. At the time there will be > £30K reserves and he would receive the other £15,000.

How would you deem the market value of the share that is transferred? Would you base it on £150K turnover and 12 shares will could you simply go with 1/12ths of the turnover or profit? If the above is true and the share is transferred at £1 I suspect that would be transferred at deemed MV of £12.5K which would be just under the AEA.

Finally. the client has not mentioned this but what would happen should the parents take a dividend then transfer the shares back to my client, again for £1? The base cost of their share is £12.5K and they sell it back to him for say £13K. They'd realise a gain (13000-12499?) on the remaining amount and now my client would have one share with a base cost of £13K. He has therefore increased the base cost of his share by transferring it to his mother and transferring it back.

I must be missing something here???

Any help is greatly appreciated.

Replies (7)

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By johngroganjga
02nd Apr 2021 19:00

You don’t mention tax on the dividend. Does the son want to gift £15,000 before or after that tax?

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By Paul Crowley
02nd Apr 2021 19:14

Would the client be prepared to share the full details of this planned tax evasion scheme to HMRC

If you facilitate what is your position?

What are you missing?
PCRT

This is a scheme as it is a series of transactions preordained for a specific result.
You said it yourself
Client (not his company) wants to give £15,000 to parents but avoiding tax by putting a series of steps inbetween

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Replying to Paul Crowley:
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By Tax Dragon
03rd Apr 2021 07:14

Paul Crowley wrote:

Would the client be prepared to share the full details of this planned tax evasion scheme to HMRC

Interesting question. Is there a choice? DoTAS?

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Replying to Tax Dragon:
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By Paul Crowley
03rd Apr 2021 21:04

Definitely not my specialist area
Who is responsible for this scheme?
My PPI ask every year something along the lines of promoting or advising on tax avoidance schemes.
For that reason a scheme that transfers shares just to pay a dividend followed (by a pre-ordained) return of share that by magic adds the benefit of rebasing is above my pay grade
After all, what genuine value is there to a single A share?
I would not even pay a pound unless there was a predetermined benefit arising.

But I love to read about this case as it went through the tribunal system

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By Paul Crowley
03rd Apr 2021 21:12

Returning the share
Surely the company has given away £30,000 in dividends

Both transfers
Market value about zero without a shareholders agreement. Dividends are not a right. Client could choose to never declare an A dividend again

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By Montrose
04th Apr 2021 19:17

The legal costs in arranging the Mem & Arts to reflect the rights concerned, the professional fees involved in filing correct and complete tax returns, and the tax interest and penalties involved when the scheme-if that is what this is-fails will exceed ant potential saving.
What about simply employing his parents?

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Replying to Montrose:
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By Tax Dragon
05th Apr 2021 07:45

Montrose wrote:

What about simply employing his parents?

Maybe the son (or did you mean his company?) doesn't need his parents to do any work for him (or it)? Maybe he doesn't want to set up a payroll, pay NIC, go through AE etc?

Or were you suggesting an alternative sham?

Son wants to give parents £15k. What about simply giving them £15k?

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