Are you a limited company shareholder with children?

If you’re a shareholder of a private limited company, can you spread the dividends paid out amongst more of your family members by adding your children as company shareholders?

It’s a question we are often asked, especially now that the new dividend tax rates are in effect.

Should you add your children as shareholders of your company?

Can you add children as shareholders of a private limited company?

There is nothing to prevent shareholders gifting shares to children, regardless of their age. There are, however, various tax implications in doing so.

Your children as shareholders

If your children are over 18, they will be taxed on any dividends they receive. Assuming they are lower rate taxpayers, this potentially gives you an immediate tax advantage.

If your children are younger than 18, you as the parents will be taxed on any dividends they receive which eliminates this tax advantage.

You may also be required to pay capital gains tax at the time of the gift, so the transfer should be carefully managed with professional advice.

Your grandchildren as shareholders

If you are a grandparent gifting shares to your grandchildren, it’s a slightly different story. Although you will be liable for any capital gains tax at the time of the gift, it’s your grandchildren who will be taxed on any dividends they receive (not the grandparents or parents).

It means you could play a canny hand that would not only help to financially support your grandchildren, but may also reduce the value of your estate for inheritance tax purposes.

Should you add your children / grandchildren as company shareholders?

In reality, most medics and dentists with a private practice have young families and no grandchildren. Even so, you may still decide to gift shares to your children in anticipation of them turning 18.

Gifting a relatively small proportion of your company shares on a piecemeal basis may enable you to:

  • Start reducing the value of your estate for inheritance tax purposes.
  • Give your children a shareholding which may provide a tax efficient source of dividend income when they reach 18 (useful to fund their university tuition and/or living costs).
  • Give your children the opportunity to utilise their annual capital gains tax exemption when they eventually dispose of the shares. This could also be useful when you liquidate the company.
  • Transfer capital (ordinary shareholding) to the next generation without triggering capital gains tax. By gifting shares on a piecemeal basis, you can utilise your annual capital gains tax exemption.

Taxation legislation and regulation are constantly evolving. It’s therefore always wise, and good practice, to regularly review your current financial strategy and company structure with your financial adviser, solicitor and accountant. If you haven’t done so recently, we suggest you give them a call!

Would you consider adding your children as shareholders of your company? Let us know by adding a comment below.

Matt Sharpe of Sharpe Medical AccountingThis article was written by Matt Sharpe of Sharpe Medical Accounting. It contains general advice only and should not be taken as a substitute for specific legal and tax advice. For more information, contact Matt on matt@sharpemedical.co.uk or 01724 700226.

2 thoughts on “Are you a limited company shareholder with children?

  1. Ian Clark

    Hi there,

    We have a limited company and both myself and my wife are share holders. I am retired now and we receive dividends from our investments in the business account. How can I make my children who are over 18 years share holders, without them having to buy any shares in my compan. This is so that when we die they don’t have to sell the dividend paying stocks and continue receiving dividends.

    Reply
    1. Owen Beswick

      Hi Ian

      Taxation to be considered: IHT, CGT, income tax and stamp duty (I’ve discounted this on the assumption that the shares are a “gift”.)

      Inheritance tax (IHT): You could “gift” your shares to your children. There will be a potential inheritance tax liability for 7 years.

      Capital gains tax (CGT): A transfer of assets/shares gives rise to a capital gains situation. Potentially you could receive “gift relief” with respect to capital gains which is a way of deferring the tax and passing it on to the recipient rather than it falling on you.

      Income tax: This could arise but if it can be demonstrated that the transfer is for reason of family or personal relations, income tax may not apply.

      As is always the case with a situation like this, I would approach your accountant to confirm a way forward. Beyond this, I would consult with a financial adviser to discuss all that needs to be considered.

      Best wishes
      Owen

      Reply

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