Dividend share problem Help Needed

gh67

I currently have an employee share scheme with a large international company who will be splitting come the 1st of April 2019. I have been told as I'm a high tax payer I will be charged 32% tax on the dividend shares I receive.
I've spoke to HMRC and they confirm this so my question is what can I do in quick time to minimise my tax.

Example

I currently hold 10000 shares in company A, after spin off I will still have 10000 shares in company A, I will also have a certain amount of shares in Company B. (we dont know the amount yet)
My thinking is company A shares will go down in value and when you add company B's value it will roughly be the same as my original value.
In company A I have over 50% i can sell tax free, 25% taxable and 25% unavailable.
My thinking is I transfer the 50% into my wives name and she will receive the dividend share and only pay 7.5% tax, is this something I can do and if so in the short time i have.

Thanks in advance

Dazed_and_confused

What has the value of the shares got to do with the dividend paid?

gh67

Dazed_and_confused wrote: »

What has the value of the shares got to do with the dividend paid?

The dividend being paid is in shares as in dividend shares, I don't know the value of them as no one will know that for sure until the new company is floated. The value of my current shares doesn't have a bearing on the dividend its more the number of shares that have a bearing.

the example I gave above was in share numbers if I try one in ££'s
My current holding of 10000 shares are valued at £55k once the spin I will still have these shares but its predicted they will halve in value so now worth £27.5K .
I will now own a set number of shares in the new company and purely a prediction that those shares will be worth £27.5k or there abouts, I'm no better off but I now have to pay 32% tax on £25.5K so this means i will be around £8k worse off.

I know the shares could increase in price and I'll get that back, I'm just wondering if I can transfer them to my wife to save tax.

Tom99

I can't see why a company splitting into two creates a taxable dividend equal to half it previous value.
Are you sure you figures are correct?

Apodemus

Tom, I think the OP’s point is that after the split he will have half the value in Company A and half the value in Company B, so the value of Company A will be the £27.5K, with dividends adjusted down accordingly.

I guess the real issue here is that before the split, 100% of the holding is within some form of favourable tax treatment as an employee share scheme and after the split, only half will be. How this is best unravelled is way beyond my knowledge!

Tom99

Apodemus wrote: »

Tom, I think the OP’s point is that after the split he will have half the value in Company A and half the value in Company B, so the value of Company A will be the £27.5K, with dividends adjusted down accordingly.

I guess the real issue here is that before the split, 100% of the holding is within some form of favourable tax treatment as an employee share scheme and after the split, only half will be. How this is best unraveled is way beyond my knowledge!

But the OP thinks he will be taxed at 32% on the whole value of the company B shares, not just the dividend.

gh67

Thanks for taking the time to reply, I probably haven't explained myself or the situation.

All the shares in the new company will be paid as Dividend shares and this is why they are liable to 32% tax as I'm in the higher tax bracket, I have spoken to HMRC and they have confirmed this, what I'm looking for is away to avoid paying the higher tax and possibly pay the 7.5% lower bracket. My thoughts where I could transfer the shares in to my wives name as she is lower rate tax.

Dazed_and_confused

There is no income tax rate of 32%.

There is a rate of 32.5% applicable to the dividends received from shares.

It still isn't clear from your post if you will be liable to pay this. You don't pay tax on "shares", it is tax on the dividend the shares pay.

Money_Grabber13579

Ok, so this is a bit of guess as to what is happening here.

Company A has (or will incorporate) a subsidiary entity, Company B. At present, the OP only has shares in Company A, with Company A owning all of the shares in Company B.

However, there is a desire to split the companies and so Company A will declare a dividend in specie, with that dividend being settled by the transfer of shares in Company B, from Company A to the OP (along with any other investors).

The OP will therefore have received a dividend equal to the value of the shares in Company B, whilst Company A’s value will have significantly reduced.

I can therefore see the OP’s dilemma because the receipt of the dividend is likely to be taxable, albeit, a capital loss might then arise if Company A’s shares were ever to be sold. If this is the way the split is taking place, it’s a very stupid way of doing it, given that with a little more care, the companies could be split using available demerger provisions which may mean that there is no tax liability for the shareholders.

Accordingly, the OP might want to investigate further as to what the proposal actually is and if there has been a misunderstanding in what is happening.

Tom99

gh67 wrote: »

Thanks for taking the time to reply, I probably haven't explained myself or the situation.

All the shares in the new company will be paid as Dividend shares and this is why they are liable to 32% tax as I'm in the higher tax bracket, I have spoken to HMRC and they have confirmed this, what I'm looking for is away to avoid paying the higher tax and possibly pay the 7.5% lower bracket. My thoughts where I could transfer the shares in to my wives name as she is lower rate tax.

Seems a very odd way to split a company. Even is shares in the new company are called dividend shares they would surely not be taxable as they are a return of you shareholder capital in Company A. Can you take cash instead? If not how can it be a dividend? Its not being paid out of profit so again how can it be a dividend?

You would presumable have to transfer all the shares to your wife to avoid 32.5% tax as I would assume any new shares issued are pro-rate to the number held.
Are you able to name the company?

Vortigern

gh67 wrote: »

In company A I have over 50% i can sell tax free, 25% taxable and 25% unavailable.

This seems to be a holding in a tax-sheltered employee shares trust account where the most recently allocated shares can't be sold, some can be sold subject to income tax and possibly NI clawback with the remaining shares free to be sold. All these shares are probably sheltered from income tax, dividend tax and CGT while they remain in the trust account. gh67 can you confirm this assumption?

If true, is it possible that shares in the new company will also be created/held in the trust and thus be tax-free?

My thinking is I transfer the 50% into my wives name and she will receive the dividend share and only pay 7.5% tax, is this something I can do and if so in the short time i have.

It can be done, if necessary. Withdraw the 50% as a share certificate, when you have the certificate, send it to the company's share registrar with a completed stock transfer form, transferring to your wife at nil consideration. There should be time to do this transfer as long as there is no ex-rights or similar date limit for the share issue.

It would help to know which shares are concerned.