Any taxable value of shares in small Ltd company?

[aceparts_com]

Hi all,
I'd like to gift some dividend paying shares to a relative, possible make them a director to.
Is there anything I should be aware of from a tax point?

[Eric Mc]

Yep - gift tax, inheritance tax and capital gains tax.

[aceparts_com]

oh, is that all!

So, for arguments sake, I wanted to give my girlfriend 10% of my company that pays a dividend of 5K a year, what, who and when would I (or she) have to pay?

You're too kind with your advice

[Eric Mc]

I was being slightly facetious to some extent. Gift Tax is a variance on Inheritance Tax and is there to prevent people gifting their estate to successors before they die and thereby escaping Inheritance Tax on death. The thresholds are pretty high so a gift of shares may not exceed the thresholds. It will depend on the overall value of the company at the date of transfer and therefore what 10% of it represents.

Capital Gains Tax could kick in on your disposal of the shares for nothing. Obviously, in reality you have made a loss on the disposal of the shares as they did cost you something originally and now you are giving them away for nothing. However, the Inland Revenue will probably want to substitute Market Value for the Nil proceeds - thus creating a notional Gain on which tax might be payable.

Probably more important in these circumstances is the threat of Section 660a ICTA. If you start paying dividends to your girlfriend, this will obviously mean you will be receiving less in the way of dividends yourself, thereby reducing your own personal tax bills. I would refer you to the very recent case of Jones V'Inland Revenue (commonly described as the Arctic Systems Case). Althjough your circumstances may be different (you don't appear to be married for a start), there are some parallels in what you intend to do with what Mr and Mrs Jones were doing.

Do a Google under "Arctic Systems" and you will find a good few articles on what happened when they took their case to The High Court afew weeks ago - the outcome was not good for thousands of small limited companies.

[aceparts_com]

Thanks for the tips. I've followed the case regarding the share distributions and subsequent back taxing of them - shocking stuff.

A couple of years ago I had a Customs importing investigation - quite amazing really; the customs man literally shared my desk in my rather cramped office for a good five hours picking out packages from a list (he had information of every parcel I had ever received regardless of courier!) and I had to show him the paper work for them.
He then went away and wrote up a full report which must have taken another couple of hours. The result was that I owed them £256 and they owed me £240 but they couldn't be offset against each other and I had to jump through hoops to claim my money.
Sorry if this has gone off on a tangent, just want to re-iterate my respect for the government authorities!

[Eric Mc]

Just be grateful that the outcome was fairly harmless. I respect government officials who do their job properly and follow the correct brief i.e. to check that individuals and businesses are applying the regulations correctly and then advising them if they are not.

What I don't like is when a government inspector is working to revenue collection targets or defaulting business targets so that they can achieve set levels of unpaid tax and/or fines, penalties and interest. That is not what government is supposed to be about.

If they follow the second approach (which some do), then they are approaching their job in a totally biased atitude and may not advise a business if they discover they are due a refund - which is immoral if not actually illegal.