Tax advice for a couple

[GuyGhibli]

The initial message was deleted from this topic on 01 August 2013 at 21:07

[MEC]

How solid is the marriage.

If there are no doubts whatsoever I would be looking for wife to have formal shareholding in the project allocated to her with payment then by dividend and/or salary.

[Eric Mc]

Limited company with appropriate shareholding split which will allow the profit from the business to be shared between the husband and the wife.

HMRC are perfectly entitled to challenge such an arrangement, of course, but based on their utter defeat in "The Arctic Systems Ltd" case, they are reticent about launching such challenges at the moment.

http://www.thisismoney.co.uk/money/article-1612416...

As ever, in these cases a good session with an accountant will pay dividends (no pun intended).

[GuyGhibli]

Thank you both.

I know the first, sound advice, is "don't ask the internet", go see an expert, but I wondered what a likely set up should be.

Thanks again

[Jockman]

GuyGhibli said:

Marriage not an issue - so far as he is concerned, she can take all of the income if that is tax efficient and legal.

Would that be legal? I mean, he has done all of the work and she has no qualifications or expertise in the subject at all - would HMRC have an issue if all of the income came to her?

Making the most of the tax allowances? At least up to the point where the income took her to higher rate?

Don't see why not.

If she is salaried, she will have to actually work some hours. If she is a shareholder receiving a dividend then this requires no hours and is merely a return on investment. No harm in both being a shareholder with different classes of shares to pay different dividend rates to maximise her brackets. Her shareholding must NOT be frivolous or it will be challenged. The Shareholder Agreement must NOT contain a provision for him to take her shares if they ever split. Those are two basic requirements to prove this as a genuine arrangement. If adopting an 'Alphabet Share' approach like this it is very important to set it up properly with professional advisers - we tend to let Hill Dickinson and Grant Thornton take care of matters at this level.

Dividend payment is best to be erratic - preferably quarterly - otherwise it will be deemed in lieu of salary.

Why stop at the higher rate? Once this has been achieved you must then ensure that both remain below the £100k bracket otherwise an effective rate of 60% is charged as nil rate bands are sacrificed. Above that, ensure that both remain below the £150k bracket. Above that....start looking at properties in St Lucia

Also consider pension payments if on the verge of any of the above brackets.

[GuyGhibli]

Jockman - thank you, sound advice.