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 or 01724 700226.

6 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.

    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

  2. Andrew


    I have a limited company that is not actively trading but will be soon and will also hold some investments (in trading companies). I am the sole shareholder currently and I understand the implications of simply passing shares to my child. However, can my mother invest in the business now before we start and then, in the future, gift these shares to her grandchildren without the tax issues with then paying dividends to them? Many thanks

    1. Owen Beswick

      Hi Andrew

      My feeling would be that a gift of the shares would count as a “disposal” and therefore Capital Gains Tax (CGT) may be payable by the grandparent. However, if there was no gain then no tax. If there was deemed to be a gain then your mother has an annual CGT allowance which would alleviate/deal with potential gains.

      There may be an IHT implication if your mother was to die within 7 years of making the gift. However there is a “gifting allowance” of £3,000pa so maybe the slow dissemination of shares to children may be a possibility also. If your mother didn’t use this facility in the previous year, then she can actually gift £6,000 in this way.

      Finally – dividends – “yes” the dividends could be paid to the children without any tax implication.

      I feel that the above is “specialist” knowledge and you have quite a specialist situation/scenario. On this basis I would encourage you to discuss this with an IFA such as ourselves.

      Best wishes

  3. Jane

    I own -100 % of the shares in company that
    let’s property owned by the company with no mortgage.

    I don’t need any of the income.

    Can I give a new class of shares to my 3 young grandchildren who are all under 5

    How do I value the share so give them and what tax would I have to pay on the gift?

    Can that new class of shares pay dividends out of the profits to the children it will be within their tax free allowance and could pay their school fees?

    So profit is retained in company, say £50,000 p/a we pay 19% corporation tax p/a = £9500 tax leaving retained profit £41,500 p/a can I pay say £30, 000 dividend to the children £10,000 each leaving £20,000 retained profit each year

    If I gave them the shares now but didn’t pay any dividend for a couple of years would that affect the value of the gift of shares?

    1. Owen Beswick

      Hi there

      The questions that you are asking could have significant implications (Tax etc) and the answers therein would require a significant time input to ensure accuracy. You may also wish to consider setting up a trust – therefore I would recommend a formal meeting with an adviser to discuss your needs. However, everything that you suggest/imply, can be done and is possible.

      I encourage you to contact Legal and Medical to arrange a meeting with an adviser in your area. We are operating telephone and zoom meetings at the moment.

      Best wishes, Owen


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