Use of alphabet shares in trading companies

It is common for clients in the owner managed business sector to adopt some form of remuneration planning. For some it is a low salary/high dividend structure others wish to provide management with shares to pay bonuses as dividends to make them more tax-efficient. But where should we draw the line on what is legitimate tax mitigation compared to tax avoidance?

Generally potential shareholders can be split into three categories:

1) Spouses (or civil partners) of the working shareholder.

2) Persons connected to the working shareholder (eg children or other family members).

3) Unconnected employees.

The primary concern in each case is whether the settlements legislation or the employment-related securities (ERS) legislation will apply resulting in an increased tax charge.

Employment-related securities

For unconnected persons the main area of concern is the ERS provisions contained within ITEPA 2003 Part 7 which seeks to impose an...