Alphabet shares is a term used to describe a company issuing different share classes with different rights. One reason for this might to pay dividends in a different proportion to voting shares and has historically been used for tax planning. They are not illegal, but HMRC do not really like ‘alphabet shares’. It has been argued that these shares merely give a “right to income” and don’t represent ownership of the Company.
In about 2008, there was a court case (Arctic Systems), in which HMRC wanted a wife’s dividends to be taxed on her husband because, they argued, he earned the money so he should pay the tax on it, even though his wife was a bona fide shareholder. HMRC lost the case but it led to draft legislation to stop so-called “income shifting”. This was subsequently cancelled when the financial crash occurred.
It is possible that the legislation will get resurrected – which is why I am a bit wary of clients issuing alphabet shares.