Gifting money/shares to grandchildren and dividends

samppatel

Hi.

• My parents wants to gift my children and my brothers children (all minors) either cash or shares in a new company which I have incorporated.
• If money will be gifted it will be from the ISA's my parents hold.
• If shares are gifted, my parents will first invest in my new business through the sale of their ISA's and then their shares will be gifted to the grandchildren.
• I will also be investing a percentage in my business as will a business partner(not related in any way)
• I understand the gift will be PET - after 7 years it will no longer form part of my parents estate.
• What I want to understand is whether future dividends paid to the children will be treated as their own income (and not mine or my parents) and therefore whether the children ill be able to use their tax allowance.
• I would also like to understand whether gifting the money or the shares is the best option.
• I would also like to understand whether there are any other tax implications or non-tax for that matter.

Thanks in advance for your time.

xylophone

It might well be more efficient for your parents to gift the money arising from the sale of assets in their ISAs into absolute trust (bare trust) for each grandchild and for the trustees to use the money to invest in the company on behalf of each child?

The gifts would be PETs.

Each child would become entitled to access and control at age 18.

Income arising on the shares from the grandparental gift would belong to each child absolutely and could be set against the child's PA.

Other types of trusts have different tax treatment.

https://www.gov.uk/topic/personal-tax/trusts

https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet

However, before doing anything, your parents would be well advised to consult a solicitor experienced in Trusts and a Tax Accountant.

samppatel

booksurr wrote: »

re taxation of dividends and minors holding shares have a read of this (bearing in mind of course that the tax payable is now as per Xylophone's links) : www. ukbusinessforums//

Thanks for the link. interesting read.

However, I believe the thread on ukbusinessforums doesn't apply in this case as they are discussing the gifting of shares by parents. In that case the dividends are considered income of the parents when over £100.

In my case, the gift is from the grandparents with a full audit trail of the source of the money (Share ISA's in this case belonging to the grand parents).

The trust structure may need to be used as minors probably cant make decisions in the company.

TheCyclingProgrammer

As this is a potentially complicated issue, involving rules around settlements and trusts, I honestly think you should seek paid advice from a professional knowledgable of such matters.

Even though there are accountants on here who are happy to help people, are you really willing to risk messing this up by relying on free advice on the Internet?

antrobus

samppatel wrote: »

• What I want to understand is whether future dividends paid to the children will be treated as their own income (and not mine or my parents) and therefore whether the children ill be able to use their tax allowance.

The dividends will be treated as their own income and children have a personal allowance just like everyone else.

xylophone wrote: »

It might well be more efficient for your parents to gift the money arising from the sale of assets in their ISAs into absolute trust (bare trust) for each grandchild and for the trustees to use the money to invest in the company on behalf of each child?....

I don't understand what you mean by saying that it "might well be more efficient for your parents to gift the money arising from the sale of assets in their ISAs into absolute trust (bare trust) for each grandchild". Any gift to a minor constitutes a bare trust. There is no way of giving money to a minor that doesn't create a trust.

antrobus

TheCyclingProgrammer wrote: »

As this is a potentially complicated issue, involving rules around settlements and trusts, I honestly think you should seek paid advice from a professional knowledgable of such matters.

Even though there are accountants on here who are happy to help people, are you really willing to risk messing this up by relying on free advice on the Internet?

It's really not all that difficult. All the grandparent concerned needs to do is sign a bit of paper that says;

I Grand Person declare that I hold 10,000 shares in Megacorp plc for my grandson David Smith absolutely

http://www.hmrc.gov.uk/manuals/tsemmanual/tsem9520.htm

P.S. As always, it's worthwhile getting a proper professional person to do this sort of thing.

xylophone

I

don't understand what you mean by saying that it "might well be more efficient for your parents to gift the money arising from the sale of assets in their ISAs into absolute trust (bare trust) for each grandchild"

If you read the first post, the OP says

If shares are gifted, my parents will first invest in my new business through the sale of their ISA's and then their shares will be gifted to the grandchildren.

It seems to me more efficient for the Trustees to receive the cash and buy the shares ....

However, I am no expert and would repeat my final comment.

However, before doing anything, your parents would be well advised to consult a solicitor experienced in Trusts and a Tax Accountant.

You may believe me when I say that if there are are misunderstandings surrounding the type of trust, income etc it is the devil of a job to sort out.