Shares owned by 18 year old in family business

pleasedelete

Hi. Hope someone can help. I do have an accountant but wanted to get my thinking clear before I talk to them and can't find anything on the web.

I have set up a new company. I am director and sole share owner. It has done quite well in 1 st year and has just secured a contract that will make about 60k after tax in 2nd year.

I have 2 children.1 is 19 and the other 17. I believe if I gift them 50 per cent of the company (25 per cent each) the 17 year old will be taxed as if it still belonged to me? Both do some work for the company (and are employees). I don't think either will work full time for it as it's not really something they are passionate about.

But is this based on when she gets the dividend or the tax year or when she does the tax return? She will be 18 midway through the tax year and so will be 18 by the end of the tax year and when she does the return.

Do I have to wait until she is 18 to gift the company and issue the dividend?

xylophone

http://www.shareview.co.uk/helpcentre/Pages/faq36.aspx http://www.jordansjournal.co.uk/family-companies-–-can-children-hold-shares http://www.accountingweb.co.uk/anyanswers/age-shareholders-0
http://www.hmrc.gov.uk/cgt/shares/basics.htm
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm
http://www.hmrc.gov.uk/cgt/shares/basics.htm

pleasedelete

Thanks but the links dont answer the question about the year they turn 18. I have looked extensively. I know under and over 18 but not how the year they turn 18 is taxed.

chrismac1

The tax point for dividends is the date the dividend is declared, per the dividend voucher issued by the company. The sensible thing to do here in my view, based on your post which may not include all the relevant points:

1. Execute a stock transfer form once she is 18.
2. She then gets a share certificate, signed and dated after her 18th birthday and is then the full legal owner of the shares.
3. She then gets the dividends on her 25%.

However I have several clients in similar situations. So far all of them have opted to issue "A Ordinary" non-voting shares to their 18 year olds. This leaves the parent (company director) in control of the votes in the boardroom and in control of 100% of the voting shares. Hence still in full control of the company.

But the 18 year-old is now eligible for dividends on the non-voting shares. Note that it is important not just to vote the dividends to save higher rate tax, but also to pay them.

pleasedelete

Thanks chrismac1. Very helpful

pjclar02

Hello there

When you speak to your accountant, I would recommend you also ask them about:-

1) Settlements legislation. Regardless of the age of the children, the settlements legislation could catch the arrangement;

2) Employment related securities. If both of the children are employees of the company, you need to ensure the paperwork supports the fact that this is a gift arising from the family relationship, rather than a reward for working hard in the business.

Just to make sure you cover off any potential tax issues.