24 February 2015    |    Taxation

Paperwork is vital with shareholdings

Do the paperwork when sharing your shares

A tribunal was asked to rule on whether some of the shares apparently owned by a director were actually his wife’s. What did the tribunal rule and what useful tax planning tips can shareholders take from it?

Asset Ownership

Ownership of an asset isn’t just a case of putting your name on a document. A good example of this is a car Registration Certificate (V5C)- The name on it shows only the registered keeper, Whereas the Vehicle may actually be Owned by a married couple. This was the notion behind Mr Rowe’s (R) argument with HMRC Over who actually owned the shares in CBF Capital Ltd (CBF).

Company records

CBF’s records e.g. company register, showed R as owing 50% of the ordinary shares. What’s more, the company secretary issued dividend vouchers and payments to R.  However he had always considered half the shares to belong to his spouse and recorded the dividends on his tax returns accordingly

HMRC vigilance

It took HMRC a couple of years to spot the disparity between R s tax returns and the company records, at which time it started an enquiry.

Beneficial ownership

R argued that it was his and his wife’s intention that he should transfer half of his CBF shares to her Soon after the Company was formed He claimed he had forgotten to follow through with the appropriate paperwork He did this only after HMRC had Started its enquiry. R Said that he was merely holding the shares in his name for his wife – often referred to as a bare trust – and she was the beneficial Owner. It is beneficial ownership that determines who owns the asset and so who the income from it belongs to.

Tribunal decides

The tribunal ruled in favour of HMRC. However,it wasn’t that it disbelieved R. In fact it was satisfied that he had intended to transfer ownership of the shares but forgot to do so and the lack of supporting paperwork was a result of that omission.

Useful lessons

R almost succeeded with his argument. It seems it would have taken little evidence to persuade the tribunal that the transfer of Shares had taken place but simply hadn’t been recorded.

Tip 1. While strictly it’s not necessary to produce paperwork to prove a transfer of ownership, it is advisable. A simple letter between the giver and the receiver will do. A witness’s signature is not required, but in a dispute with HMRC having one would strengthen your hand.

Tip 2. If you wish to keep your name on the shares in the company records, say, because you don’t want your fellow shareholders to know you’ve transferred some to your spouse, that’s OK.  You can be their nominee. To ensure they are taxable on the dividends they must have all the rights that go with the shares, e.g. voting power, as well as the right to dividends. That means they can direct how you vote at shareholder meetings etc.

Next steps

Nicolson Accountancy provide a full company secretarial service, so contact us today if you have any concerns or questions about your shareholdings, or just want some general advice.

Glasgow
31 Lynedoch St.
G3 6EF

Kilmarnock
71 King Street
KA1 1PT

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HS1 2DZ

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