Settlement, or any other issues?

Settlement, or any other issues?

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I have a 51/49 father and son company. The son is 51%, the father 49%.  The company was incorporated under s162 five years ago.

They have decided to declare a dividend, and the father wants to loan or gift his proportion to the son personally so he can buy a residential property. They also have  credit loan accounts each, and the father will also gift/loan his to the son. It is worth noting that the son does the majority of work in the business as the father is gradually taking a step back.

My question is, I cannot see the settlements apply here as I cannot see a settlement, however is this an aspect that I need to consider, and are there any other aspects? The father has minimal other income so wants to make use of the balance of his BRB rather than transferring his shares to the son (if possible!) however it just doesn't seem right that he could gift or loan his proportion over to the son. If there are no problems, could this be done more regularly?

Thanks

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By Steve Kesby
20th Oct 2014 12:03

It is a settlement, but not settlor interested

Technically the making of a gift is a settlement, but if it is settled absolutely (ie no strings attached), then the so-called "settlements" legislation won't apply. The legislation essentially applies where someone is trying to get their own income taxed on somebody else (at more favourable rates).

Dad is free to give his son as much as he wants out of his post-tax income and if he does so on a regular basis, they will be exempt transfers for IHT purposes too.

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