I have a client running a long established private limited company owned 50/50 by he and his spouse.
He has 2 children (minors) and they've been left money from their deceased grandmother (mother of one of the limited company shareholders). It's been suggested that the children use the money to purchase some shares in the limited company, from their parents, at market value. The shares have full voting rights and entitlement to dividends (there are no alphabet shares involved).
Have any members seen this done and are there any pitfalls (tax wise?) could hmrc attack this arrangement as effectively the parents dividends will be reduced when the children start receiving dividends.
I understand that settlements legislation doesn't apply when the money being used to buy the shares is from a deceased relative so is there other legislation that could challenge this.
My concern is that the children are aged between 10 and 13 so could it be questioned that they don't have enough knowledge to be informed about making investment decisions and that might call the arrangement into question.
Presumably, the children would need to obtain UTR's and potentially fill out tax returns and be liable to dividend tax on them to the extent that the income exceed the dividend allowance plus personal allowance?
Any thoughts much appreciated.