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Sam
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I have helped a family member set up a business and in return

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I have helped a family member set up a business and in return he has offered me shares in his business. I now need to decide if I hold the shares in my name or my companies name. They are worth approx 200k at present ......I know....lucky me!
My business is a small limited company and has a turnover of approx 48k.
I have no other form of employment and only take out minimal directors drawings each year
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi


Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.

I would recommend you hold these in your personal name - as (god forbid) anything happens to your limited company, then these will be treated as an asset of the business. Or you sell the company, then subject to corporation tax (as capital gains do not apply to limited companies, and nor does the annual exemption allowance, which currently allows the first £11,100 of any gain to be exempt.

Plus if owned by the limited company the dividends will then be subject to corporation tax, and then again personal tax or dividend tax on drawing

You advise the company turnover but not what income you personally draw - and if this is in excess of £42,475 - then any dividend payment made to you personally would then be subject to further taxation.

So its really swings and roundabouts, but I would be inclined to keep these two positions separate if possible, and perhaps also seek independent financial advise on this matter (as we are Tax experts but not financial experts)

Thanks

Sam

Customer: replied 2 years ago.
So if I keep them in personally will they be liable for tax whilst they are still shares? Or only liable for tax once I cash them in?
I only draw approx 30k from my business each year.
Expert:  Sam replied 2 years ago.
Hi

Thanks for your response

No you only will have a tax position on these shares on one of two occasions
1) When a dividend is paid out (and the dividend will be subjected to 10% tax credit as notionally suffered by your family members company) OR
2) When you come to sell them - as you will receive a profit between the value paid for them and the price you sell them for (which I would assume would be a sale back to the company)
If you are gifted the shares then they have a NIL acquisition value.

And if you are paid a dividend (based on profits that the company makes) then as you only draw £30,000 from your own company at this point, then as long as when any dividend paid out, when added to the £30,000 sees the total, as less than £42,475 then you will have no further tax liability.
If the combined income is more than £42475 (But less than £150,000) then you will suffer a further 22.5% on the excess amount.

Thanks

Sam
Customer: replied 2 years ago.
1) When a dividend is paid out (and the dividend will be subjected to 10% tax credit as notionally suffered by your family members company)
What does this mean??
Expert:  Sam replied 2 years ago.
Hi

Ok when a private limited company pays out a dividend it can only do so
1) After corporation tax has been considered, and there still being sufficient profits in the company for a dividend to be paid out and
2) The company from where the dividend is being paid - has to hold back a 10% tax credit - so for example, if your dividend award amounted to £1000 - the company actually would have recorded as having paid out £1100 -
The gross dividend being £1100
Tax credit of £100
Payment to you £1000

I could offer more from the paying companies perspective - but this would be irrelevant from your viewpoint and your tax position
I hope that offers a clearer explanation (I assumed as held your own limited company that perhaps you drew dividends from your own company - and then that sentence would not confuse, but apologies as this does in fact appear to be the case, and not my intention )


Thanks

Sam
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