Readers’ forum: Does giving consent to change share rights cause tax issues?

I have read the HMRC spotlight on use of dividend diversion to pay education fees and am concerned that it might affect some planning I am advising on.

My client company is owned by John (60 shares) and by John’s father Peter (40 shares). These shareholdings are of ordinary shares and have been in place for many years. Peter has proposed that his 40 shares are converted to B ordinary shares and then ten out of the 40 are converted into preference shares. Those ten will be transferred to Peter’s grandson Henry (John’s son) who is 12 years old and the dividends on them will be used to pay school fees.

The company has a history of paying substantial dividends and there are no plans to increase the total dividends paid each year – the preference shares will take the first slice of dividend but John...