Following its recent investigation into an alleged avoidance scheme being promoted to save tax on private school fees (‘School fees scheme flawed, says TPA’), Dan Neidle’s Tax Policy Associates has found such arrangements to be widespread. The schemes typically involve a family member paying a nominal amount for valuable shares in the parent’s company, immediately putting the shares into trust for the benefit of the parent’s children, with dividends on those shares then being received by the trust and effectively taxed on the children. The school fees are then paid out of the children’s after-tax income (benefiting from their personal allowance with tax at their marginal rate) rather than out of the parent’s often considerable post-tax income. TPA contends that these schemes do not work because the family member is paying an artificially low amount for the shares, which clearly are valuable if they give rise to dividends which cover the cost of expensive school fees (potentially many £100,000s over several years in some cases).
TPA has recently discovered that other similar arrangements are being promoted where grandparents gift property or shares in a family business to their grandchildren, but which appear to fall foul of basic tax rules. One such scheme purports to gift shares in the family company to the children which then allows the children to pay the fees ‘in a tax-free manner completely’. Another offers a ‘special structure’ to ensure the arrangements comply with the law, while one scheme appears to ignore the rules around indirect settlements.
TPA is reporting promoters of the various schemes to the relevant professional and regulatory bodies and also to HMRC.
Following its recent investigation into an alleged avoidance scheme being promoted to save tax on private school fees (‘School fees scheme flawed, says TPA’), Dan Neidle’s Tax Policy Associates has found such arrangements to be widespread. The schemes typically involve a family member paying a nominal amount for valuable shares in the parent’s company, immediately putting the shares into trust for the benefit of the parent’s children, with dividends on those shares then being received by the trust and effectively taxed on the children. The school fees are then paid out of the children’s after-tax income (benefiting from their personal allowance with tax at their marginal rate) rather than out of the parent’s often considerable post-tax income. TPA contends that these schemes do not work because the family member is paying an artificially low amount for the shares, which clearly are valuable if they give rise to dividends which cover the cost of expensive school fees (potentially many £100,000s over several years in some cases).
TPA has recently discovered that other similar arrangements are being promoted where grandparents gift property or shares in a family business to their grandchildren, but which appear to fall foul of basic tax rules. One such scheme purports to gift shares in the family company to the children which then allows the children to pay the fees ‘in a tax-free manner completely’. Another offers a ‘special structure’ to ensure the arrangements comply with the law, while one scheme appears to ignore the rules around indirect settlements.
TPA is reporting promoters of the various schemes to the relevant professional and regulatory bodies and also to HMRC.
