Gifting shares

[benf76]

My father set up a Ltd company about 15 years, my mother (who has only ever worked maximum 1 day a week filing, cleaning etc) and him are the only share holders with 1 share each.

I joined the company just after it was set up. My sister joined about 10 years ago, which was also around the time my father started scalling back his involvement with the running of the business.

My father scaled back to a point where, about 3 years ago, he had no more involvement with any aspect of the business. He's still the MD and is still drawing wages/dividends. My sister and I have been in total control of it during the last 3 years.

During this time the business has gone from strength to strength. It is now much more profitable than it ever has been in the past. My father has recognised this and, in the past, promised to make us directors and give us some ownership of the business.

However, he is now saying that he can't just gift us shares, the only way we can get them is to acquire them at the level they are worth. Our accountant is backing him up on this.

My sister is adamant that shares can be transferred at any price, as long as the correct stamp duty is paid on them. She also doesn't trust our accountant, due to a few issues in the past.

Obviously, things are starting to get a bit uncomfortable and i'm stuck in the middle of it all!! Can anyone offer any advice?

Thanks

 

[Bob]

There are various tax reliefs available on the disposal of business assets. Some information from HMRC here. Has to be a personal trading company for some reliefs
I would suggest that you are unlikely to get an accurate answer to your query on a forum without disclosing much more information which would probably be unwise.
Probably best that you and your sister have a meeting with an independent accountant who can be provided with more detailed info.
Unfortunately at the end of the day, if your parents don't wish to transfer shares, there is little you can do
As they only hold 1 share each, these could be sub-divided into say 100 1p shares and they could transfer a %.

 

[MikeJ]

The accountant is broadly correct. You can't sell something worth £10,000 for £1, as the person buying will be making a gain.

However, there's almost certainly an effective way around this, including trust arrangements and drip-feeding the shares to you at an amount each year that is within the legal gift limits. I'd get the opinion of another accountant and/or a financial advisor.

 

[benf76]

Hi, thanks for the responses.

I agree about the disclosing info, can't really give much more away. I think specialist, independent advice is the way forward.

It's just a shame for me that its come to this - us meeting up with other accountants behind our parents back & our parents backing down on what they previously promised.

The joys of working with family!!

 

[BTC1812]

The problem is compounded since you are employees of the company and as such are obtaining shares by the way employment and are subject to Employment-related securities and options reportable events under Section 421J Income Tax (Earnings and Pensions) Act 2003, this must be declared to HMRC on Form 42, and as such are valued at market price, anything under this is deemed a benefit in kind and must be declared as such, the benefit taxed on the employee and the company pays the Class 1 A NIC.

There is very few things that come free nowadays, the existing accountant is working for his client who is the company, you can get independent advice, however you cannot force your point of view on the parents since the sale has to be agreed by both parties so some negotiation will have be undertaken at some stage.

 

[Billmccallum]

see http://www.hmrc.gov.uk/cgt/shares/reliefs.htm

 

[BTC1812]

To Billmaccallum

this does not apply to those acquiring them only this disposing of them, which is what I was alluding to.

 

[Billmccallum]

To Billmaccallum

this does not apply to those acquiring them only this disposing of them, which is what I was alluding to.

but it also includes the info that those acquiring them wont have to pay any tax until they dispose of them.

 

[BTC1812]

But the difference in the market value to what is actually paid need accounting for
http://www.hmrc.gov.uk/MANUALS/ersmmanual/Index.htm

 

[Mitchells Bristol]

There is an important distinction to be made in these circumstances. Either the company can issue new shares to the children, in which case the employment related securities legislation will kick in, as the issue of shares at less than market value would be deemed to be an employment related benefit.

However, the alternative is for the parents to gift their shares to the children, out of natural love and affection (as opposed to as a reward for employment duties), and claim business asset holdover relief (if the shares qualify). This way it may be possible to avoid a tax charge on the share transfer - not straightforward but ultimately possible.

 

[Bob]

There is an important distinction to be made in these circumstances. Either the company can issue new shares to the children, in which case the employment related securities legislation will kick in, as the issue of shares at less than market value would be deemed to be an employment related benefit.

However, the alternative is for the parents to gift their shares to the children, out of natural love and affection (as opposed to as a reward for employment duties), and claim business asset holdover relief (if the shares qualify). This way it may be possible to avoid a tax charge on the share transfer - not straightforward but ultimately possible.

Thanks Taxonomy. That was what I thought but wasn't sure if any of the rules had changed :redface: