Making the kids shareholders

[b0redom]

Hi All,
A quick question for the panel. I've got kids. They're very young now, but at some point, I hope they'll go to University or learn a trade.

Is there anything stopping me issuing them a share each (of a different class to mine) which would allow me to pay a nomial dividend of say, £1000/year to them.

The plan would be to pay that into a trust which they could access when they were 21, thus hopefully paying off a big chuck of student loan, or setting them up in their own Ltd if they were a sparky/mechanic etc.

Obviously they are not earning, so presumably this would be a reasonably tax efficient way to extract funds from MyCo.

[malvolio]

Hi All,
A quick question for the panel. I've got kids. They're very young now, but at some point, I hope they'll go to University or learn a trade.

Is there anything stopping me issuing them a share each (of a different class to mine) which would allow me to pay a nomial dividend of say, £1000/year to them.

The plan would be to pay that into a trust which they could access when they were 21, thus hopefully paying off a big chuck of student loan, or setting them up in their own Ltd if they were a sparky/mechanic etc.

Obviously they are not earning, so presumably this would be a reasonably tax efficient way to extract funds from MyCo.

S660. It was set up precisely to stop this happening. Using a trust may get around it, since it effectively denies you the benefit of the income, but equally you can argue that you are diverting your income to gain a tax advantage that is not warranted for business reasons: in effect YourCo is paying monies that should be paid from your earned income (or the kids', if they had any). Get legal advice just in case.

[northernladuk]

Giving your spouse is questionable as it is. Yes we get around it but HMRC understandably doesn't like it so we ride a fine line. Trying to bring your kids in is just financial suicide.

HMRC certainly won't agree to you giving your kids money from your company where as a parent is it your responsibility to give your kids your money.

I can't quote any basis for this bar common sense.

[ASB]

Giving your spouse is questionable as it is. Yes we get around it but HMRC understandably doesn't like it so we ride a fine line. Trying to bring your kids in is just financial suicide.

HMRC certainly won't agree to you giving your kids money from your company where as a parent is it your responsibility to give your kids your money.

I can't quote any basis for this bar common sense.

The basic issue is the part of S660 (B5) which says that gifts from parents which generate income of more than £100 per year (per parent per child) will be taxed onto the parent.

It doesn't actually matter what the gift is in fact. Be it some shares in MyCo or some shares in anything else, or even straight cash for that matter.

In any event minors cannot own shares in their own name, they would have to be in a bare trust or similar.

If it so happened that the gift was made by people other than parents then the provisions do not apply. However flogging a couple of shares to joe down the road/grandad and they subsequently give them to the children would be problematic, it's clearly transparent.

As intimated by Malvolio there are potential ways round it by establishing a discretionary or accumulation and maintenance trust but this has impact on the settler at the time of settlement.

http://forums.contractoruk.com/accou...-children.html

[Greg@CapitalCity]

Yep, its the Settlements provisions Section 619 to 648 of the 2005 Income Tax (Trading and Other Income) Act (ITTOIA 2005). These provisions are a set of rules designed to stop individuals from avoiding tax by artificially diverting their income to other family members in order to save tax.

In your case they apply because you are proposing to give shares in your businesses to your (minor) children. They can also apply when you set-up a trust in favour of a minor child.

[THEPUMA]

In theory you could give them the shares once they are no longer minors but it would have to be an outright gift so you would be gifting them not only a permanent right to a dividend, whenever one is paid, but also a share in the capital on a winding up.

I guess if you issued some shares to your kids while they were at Uni and maybe afterwards to fund a deposit on a house and they just happened to agree to transfer them back once you were no longer financially supporting them, that could work, but it would be a little aggressive.

PUMA

[b0redom]

Ah well. Worth a stab I guess.

Thanks anyway....

b0redom