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Where Taxpayers and Advisers Meet

Opinion on Current Trust / Tax structure

Taxnoob86
Posts:3
Joined:Wed Jan 09, 2019 10:22 am
Opinion on Current Trust / Tax structure

Postby Taxnoob86 » Wed Jan 09, 2019 10:46 am

Hi All,

I have been looking through the forums and have found posts that partially cover the below topics separately but if this has already been answered correctly please forgive me for re-asking

i am looking for a tax expert to reassure me that we have not done anything questionable with regards to my current tax arrangement

My question is around trust taxation and i have laid out the main points below (in order of events)

LTD set up to run my contracting company and property development business
3 classes of shares have been set up (A, B C)
A shares held by me (only source of income is this Ltd) B shares held by my wife ( has a basic rate PAYE 2nd income)
The C shares are held in trust for my minor children (no other income)
Upon set up of the company my parents (the grandparents of the Minors) placed £20 in a discretionary trust for the children (me and my wife as trustees)
The 20 was then used for the initial share capital of the company by purchasing the C shares
A deed of variation was then used to create an interest in possession trust
Dividends were subsequently declared on the C shares and paid direct to the minor children (bank account in their own name, dividends circa 25k across the two minor beneficiaries)
This was then declared as dividend income on the self assessment return for the minor children (no tax due as under the PA)

The advice and trust deed was drawn up by a solicitor who is also a CTA. The reason i am posting to this forum is for a conceptual second opinion (and to whether or not i would be wise to seek a full second legal opinion)

There are a number of points I wanted to have some reassurance on

1. Is the use of alphabet shares paying different levels of dividends (we are paying up to the PA for each of the holders) a sensible idea?
2. I know the payments are taxed using the minors tax rates however are we likely to come up against any issues in regards to settlement legislation or GAAR?
3. How likely are HMRC to challenge the above and generally how defensible is the above strategy if challenged by HMRC?

I also had a further idea that i have not had advise on yet.

4. In future would it be possible to use the dividend payments paid directly to the Minors to loan back into the company (creating a shareholders loan) and then can the company pay interest up to the Personal Savings Allowance and the Savings Rate Band back to the minors directly? (much in the same way i am currently doing for the directors loan balance)

I wanted to make sure the above is as watertight as possible BEFORE any challenge from HMRC (question 4 is just a theoretical question of something I have been thinking about and will take paid for advice on before implementing).

If this is too much of a detailed question for the forum please accept my apologies but as i have already paid for advice on this i wanted a qualified opinion as to whether or not i should take any further advice or action.

Thanks in advance

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: Opinion on Current Trust / Tax structure

Postby AnthonyR » Wed Jan 09, 2019 12:54 pm

It's a complex area and lots of people will have a view on it.

The key question is whether the £20 settled by your grandparents is the actual settlement that provides income to the trust or (as HMRC may argue) whether your decision to vote dividends on the C shares rather than the A and B shares is effectively a settlement by you which would fall under the parental settlement rules and result in the income being taxed on you.

See https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4225
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Opinion on Current Trust / Tax structure

Postby AGoodman » Thu Jan 10, 2019 11:54 am

At first sight, it does look like it could be a settlement (which includes "arrangements") by you. Definitely worth looking at again if the original advice did not consider this.

GAAR less likely to be a problem simply because HMRC seem to be focused on bigger fish but if it was put in place after the introduction of GAAR, there is a risk there.

Taxnoob86
Posts:3
Joined:Wed Jan 09, 2019 10:22 am

Re: Opinion on Current Trust / Tax structure

Postby Taxnoob86 » Thu Jan 10, 2019 5:20 pm

Thanks Both for your responses,

Anthony R - Thank you for this. That is definitely the key question that i would be asking now if we do seek a second legal opinion (which it sounds like it is worth doing).

AGoodman - Thank you the trust and Ltd was set up circa May 2017 (as a layman i only have a very vague knowledge of GAAR)

As far as getting further advice on this what do people recommend? Is it worth approaching a barrister (member of the revenue bar) for an opinion rather than another solicitor or accountant. (my thinking here is that as they would be the ones who would likely defend this in court so they may be best place to answer).

Also did anyone have any thoughts on point 4.?

Taxnoob86
Posts:3
Joined:Wed Jan 09, 2019 10:22 am

Re: Opinion on Current Trust / Tax structure

Postby Taxnoob86 » Tue Jan 15, 2019 4:13 pm

Hi All

Just wondered if there were any thoughts on my 4th point at all and if anyone could point me in the right direction for a second (paid for) opinion on this.

I noticed that the Revenue bar have a Joint Advisory Scheme which looks like a very cost effective way of obtaining a specialist tax opinion. I am not eligible personally but would it be worth having my accountant reach out to a barrister through there https://revenue-bar.org/schemes/joint-advisory-scheme/ ? or does anyone have any other ideas?

Thanks


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