Splitting shares can be an effective way to minimise taxes, provided the share splitting is not considered a settlement under Section 660a (explained later).
The article explains the process and matters to be considered when transferring company shares.
Stock transfer form
A Stock Transfer Form needs to be completed and sent to the company secretary.
Stamp duty
If the transfer is between husband and wife, then no stamp duty is chargeable and the form can be marked as falling within “Category L”. In this case, the form should be kept in the company’s statutory records. [Note that transfers between parents and children incur stamp duty.]
Where stamp duty applies, the rate is 0.5% of the consideration amount or share value. The form needs to be forwarded, with a cheque, to the London Stamp Office. They can be contacted to answer any queries on 0845 603 0135.
Fair value
A fair market value for the shares needs to be calculated to deal with capital gains tax for both buyer and seller.
For the valuation it is best to speak to your accountant.
Company secretary’s duties
Appropriate entries need to be recorded in the company’s statutory records, including the Register of Director’s Interests (if the shareholder is a director) and the Register of Members and Shareholdings.
Companies House needs to be advised of the transfer on the next completion of the Annual Return form.
Section 660 issue
When transferring shares you will need to consider the effect of HMRC’s latest interpretation and actions in respect of Section 660A.
Whilst being in existence for many years, HMRC have placed a new practical interpretation on them.
Under Section 660A the transfers of shares can be considered a “settlement”, giving a tax advantage where a non working shareholder receives dividends out of proportion to their contribution to the company.
In these circumstances, HMRC will wish to interpret that the non working shareholder should be taxed as if it were paid to the person transferring the shares.
If your transfer of shares falls within this category, you will need to take professional advice in order to ensure that you avoid any potential Section 660A pitfalls. Typically these types of transfer are between husband and wife who seek to minimise their combined tax burden by using their full income tax allowances.