Succession problem

22 November 2006

Issue: 4085 / Categories: Forum & Feedback , IR35

My client is 62 and, with his wife, is the co-owner of a small and growing company, formed ten years ago and now with an annual turnover of over £300,000. Current profits after directors' remuneration are not significant and no dividends have been declared. Husband and wife each own one issued share out of an authorised share capital of £100. The company has no fixed assets to speak of, and trades from rented premises.

The client now wishes to plan his exit strategy starting at age 65. He has two director/managers who are not shareholders and wishes to appoint a third director/manager.
He would like to reward each director/manager by gifting them shares so that they each own respectively 20% of the company. The client and his wife would each retain a 20% stake and the husband would continue as a director.
The client also wishes to institute a consultancy agreement from age 65 whereby the company pays £2 000 a month for ten years to his own personal consultancy company from which he draws remuneration subject to PAYE and NIC. He also has a credit balance of around £40 000 in his loan account with the main company.
I foresee some tax problems about the suggested succession plan particularly regarding the shares to be gifted to the director/managers...

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