Gifting shares of a Trading Business to son/daughter

[LondonSW]

Hi All, many thanks in advance to whoever will contribute to this post.

My wife and myself, we have several Trading and Investment Businesses (Investment is a Limited Co doing BTL/property biz), and I was wondering when/how to start gifting shares to the kids.

I was wondering if gifting shares, of a Trading biz, attract any CGT or IHT tax.
The same if gifting shares of an Investment biz attract any CGT or IHT tax (the latest I guess so, with 7y rule).

I was wondering also from which age the kids, would be taxed as a stand alone individual with their own tax return, if the businesses distribute dividends to them. 16y? 18?

We looking at optimising tax on dividend, start to pass family asset to kids etc etc

Many thanks

 

[Newchodge]

Children pay tax in the same way as adults on their savings and investments. No lower age limit. They also get the same tax free allowance as adults.

 

[TheCyclingProgrammer]

This is likely to be caught by s629 of the settlements legislation which would make any dividends received for shares gifted to a minor child of the settlor taxable on their parents.

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4300

If they are 18 or over there’s also a risk it’s caught by s624 of the same legislation but only where the parents retain an interest in the shares, usually due to some conditions being attached to the gift.

I would strongly advise professional advice.

 

[UK Contractor Accountant]

You gift shares into family trust for minor children with grandparent/s as Trustees. This avoids the Settlement provisions applying.

Gift hold relief applies for shares in trading companies so no GGT applies to the disposal.

 

[LondonSW]

Problem of family trust is that dividends received by trust, if I well understand, would be taxed 38.1% above £ 1K. Correct?

Otherwise it seems that we better wait for kids to be 18y, make them a proper gift, and while studying at Uni use their dividend allowance and (7.5%) reduced taxation on dividend.

Thank you all for contribution.

 

[Adam93]

Gifting the trading company shares will qualify for s165 gift relief - but you must claim this in a joint election with the recipient of the shares and file the correct forms with your self-assessment tax return (i.e. the relief is not automatic).

With the investment co's shares gift relief will not be available, however, you could transfer on a piecemeal basis making use of your annual exempt amount each year. These investment co shares will attract IHT when you die as no BPR will be available unless you gift now and live 7 years.

Trusts are not as attractive as they used to be and will cost a lot in just management fees let alone tax. This is especially the case if you have a minor child as a beneficiary as this could be considered as settlor interested trust and CGT gift relief will be denied when you transfer the shares to the trust. you will have to structure it in such a way to avoid this.

From an IHT point of view, the gifts of the shares (if directly to children) will be a PET and the trading company shares will be covered by BPR.

There will be no IHT problems as long as you live 7 years from the date of gift.

You are going to need to get professional advice in my opinion. You are definitely going to need to get the shares of the company valued so you can work out the market value for any shares gifted.

 

[LondonSW]

Thank you Adam, really appreciated.