Tax Planning

Many companies have simple share capital structures whilst others have different classes of shares for different types of shareholders. Many complex structures have been well designed but we often see situations where shares have been issued or transferred without having fully considered the tax implications of doing so.

There are often very good reasons for having share structures which are more complex than 1, 100 or 1,000 shares owned by one person or a very few. For example, a shareholder who has retired from management of the company might want to see income arising from his investment, whilst those shareholders who manage the company might be content with less of an income but more capital growth in prospect.

For the successful company, shares might become owned by family trusts as a mechanism for spreading some of the wealth in the company around the family. This is not aggressive tax planning but can be a most tax-efficient method of generating income for those family members in need.

When there is a rising star working in the business but not a member of a controlling family, he/she could be extremely motivated if in receipt of some shares in the company. The tax law surrounding the grant of shares to employees is notoriously complex.

However, there are things which can be done, often by granting share options under the Enterprise Management Incentive (EMI) scheme. The share options can be turned into shares when all parties are ready for this to happen. Where a company is to be sold, an EMI scheme can enable the rising star to receive a part of the proceeds taxed as a capital gain at 10% with Entrepreneurs’ Relief rather than being taxed as income.