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Memory Refresh-Are shares legally in Child's Name?

SLOPPY GIFTS -Distinguishing Plc shares held by Parent for Minor Child - No Separate Stockbroker a/c

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Client advised me of total UK quoted share dividends received 2018/19.

I then asked for a full breakdown of the companies invested in and their respective dividends.

She then mentioned that some of the shares were "owned or earmarked" by her as parent for their minor child in respect of parental christmas/birthday gifts. I am conscious that parental bare trust income for minor child is not tax reportable on parent if EACH parent has gifted capital giving rise to income of £100 or less per annum from parental gifts to child.

From what parent has told me so far I suspect that rather than the Plc shares being broker registered in name of "parent re a/c child A", I think that the shares may just be registered in parent's name with a mental note made by parent that when minor child becomes an adult the "gifted" shares will be transferred to the adult child.

In the past I have dealt with these irritating bare trusts but the parent has always gotten the stockbroker to show the shares held by, say, "Mrs A Bloggs a/c AB" for her minor child Augustus Bloggs. And where the parent has many children then the stockbroker has created separate parental accounts for each minor child.

But if in the present case the "earmarked" gifts to minor child are held in the same stockbroker account as the parent's is it still possible for me to get my tax scalpel out and cut out of the parent's dividend list all of the "child's" dividends (which would in total be less than £100) which parent advised are only "mentally earmarked" for the child and which child will receive sometime after they come of age.

Or would HMRC attempt to say that there is no paper trail to indicate that the shares were "owned" by the child and so all of the dividend income must be taxed on parent.

There should not be any stamp duty implications were mother to transfer any of the earmarked shares to the adult child, but CGT may be an issue for the mother depending on her other CGT disposals. CGT would not have been an issue had the shares been held in a stockbroker account for the minor child from the word go.

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17th Jun 2019 01:47

penelope pitstop wrote:

Or would HMRC attempt to say that there is no paper trail to indicate that the shares were "owned" by the child and so all of the dividend income must be taxed on parent.

Well if there isn't any paper trail (or other convincing evidence), that's what I'd say, never mind HMRC.

Any evidence of the dividend being paid to the child (at the time)?

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to Accountant A
17th Jun 2019 02:04

Will ask mother tomorrow how she has actually "earmarked" the shares for the child.

Shares however are definitely blended in with the mother's own shares on the mother's broker account.

I would bet that mother said something like, "it's your birthday sweetie! £250 worth of chocolate, or cash or shares in your fave company?"

I also bet there is a stockbroker purchase on or around the date of the child's birthday or Christmas etc.

So there would be an "implied" but perhaps ambiguous paper trail.

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to penelope pitstop
17th Jun 2019 08:49

penelope pitstop wrote:

Shares however are definitely blended in with the mother's own shares on the mother's broker account.

There's where the whole thing collapses.

If there was a separate account, your case would be arguable.

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to penelope pitstop
17th Jun 2019 21:59

penelope pitstop wrote:

Will ask mother tomorrow how she has actually "earmarked" the shares for the child.

What did mother say?

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to Tax Dragon
17th Jun 2019 22:23

Mother said in actual fact that minor child's shareholdings are held by stockbroker in mother's name/account. There is no reference whatsoever in the stockbroker's account to the child's name.

Mothers own shares which she says belong to her alone are all held outside of the stockbroker's account.

To make matters worse the stockbroker's annual dividend tax certificate has a statement on the tax certificate to be signed by the mother which says something like the following:

I/We declare that I was/we were the beneficial owner(s) of the securities mentioned above, and that I was /we were beneficially entitled to the said dividend(s).

I cannot see that a minor child who is not referred to in this stockbroker account could sign this statement.

The problem is that the mother said today she did not know that shares could be owned by a minor child.

And there is no other documentary evidence that the child's shareholdings belong to the minor child. So it seems to me that all of the dividends will have to be assessed as mother's income.

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to penelope pitstop
18th Jun 2019 09:31

Two quick comments: a statement to be signed by the mother is not a statement signed by the mother; the mixing you anticipated is not there (the shares earmarked for the child are in the account while the mother's shares are not).

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to Tax Dragon
18th Jun 2019 12:24

Yes. I take your point. And most clients would not even bother signing this statement. Probably they wouldn't even see the statement in all of the certificate blurb.

But the problem is that there is only a mental "earmarking" of the shares for the child.

Who's to say that they belong to the child or not.

What the mother has carefully done though is ensure that ONLY the child's shares are held by the stockbroker. ALL of the mother's own shares are held OUTSIDE of the stockbroker.

So there is de facto separation of the two sets of shareholdings. But ultimately, they are all still in the mother's name.

I did suggest that mother ask the stockbroker to "gift" the whole stockbroker portfolio to the child which would appear to be exempt from stamp duty. CGT would be less than the CGT exemption.

But if the child has always been the beneficial owner then presumably there would be no CGT tax event on registration of the shares in the child's name, because he has always been the (CGT) owner of the shares.

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to penelope pitstop
18th Jun 2019 13:13

Well if you're determined to make this poor... erm rich... woman pay an extra £15 in tax then I'm not going to stop you.

But you started by saying "Memory Refresh-Are shares legally in Child's Name? ...No Separate Stockbroker a/c"

I'm merely observing that it turned out to be wrong factually as well as, perhaps, technically (is it legal ownership that matters?)

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18th Jun 2019 13:23

If only this tightwad mother had asked for advice at the outset............

Deserves all she gets, I'm afraid.

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to lionofludesch
18th Jun 2019 17:26

Tight wad? Tight wad?

Wish she had been my mother.............all I got as a kid was a rolling pin over me head!

In view of the above and what mother has now told me the child's shares legally belong to mother.

Mother has now confirmed that all past dividends have been paid to mother (to her bank account) and then she then gave the equivalent amounts in CASH to her child. (Is there a paper trail?) So it is the child who has the beneficial interest in the shares and not the mother.

Since CGT is based on beneficial interests the shares must be the child's for CGT purposes. But for income tax purposes, is it usually the beneficial owner who is taxed on the dividends. But client has nothing in writing yet to prove this.

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to lionofludesch
18th Jun 2019 14:24

In fact mother is usually very careful to take professional advice.

Seems like she slipped up innocently on this one.

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