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Which parent pays the tax?

Children under 18 given shares in ltd co, receive dividends, which parent pays tax?

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If in a private ltd co, minor children (under 18) are given shares, they receive dividend income and I understand this income is assessed as the parent(s) income, but which parent(s)?

 

If mother and father are married, are not separated, have 2 children and the 2 children own the same amount of dividends, which parent(s) is the income assessed on?

 

is it is simple as it is just split 50/50 between parents?

if not, how is it split and does it depend on any criteria?  For example if the shareholdings are held as a bare trust by one of the parents, perhaps they are assessed on the parents?

 

Does it make a difference that my client does not want their children to appear at companies house so is going to hold them as nominee shareholders under a bare trust?

 

thank you for clearing up the question about which parent(s) the assessment of earnings will fall upon.

 

Replies (13)

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By Andywho is fed up
03rd Jul 2022 09:50

Which parent gave them the shares might be a good starting point for your answer.

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Replying to Andywho is fed up:
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By Curiositykilledthecat
03rd Jul 2022 11:08

The mother had the shares on incorporation and gave them to children, but father has no other earnings so it seems a shame if assessed on mother.

So it seems it follows with who gave them away?

If so, would it make any difference if they started again and gave the children the shares upon incorporation?

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Replying to Curiositykilledthecat:
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By Hugo Fair
03rd Jul 2022 11:46

Think you're missing the point ... if I've understood the scenario.

M(other) is 100% shareholder ... but was hoping, via the above convoluted route, to divert a chunk of the dividends to being taxable on F(ather)?
That would be a rather obvious loophole wouldn't it?

There are many other constructions that will deliver subtly different outcomes (for F and/or for children) ... which should be reviewed by M's financial adviser.

Note: "if they started again and gave the children the shares upon incorporation" suggests that trading hasn't yet commenced? In which case NOW would be an excellent time to sort out objectives before it becomes harder to do!

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Replying to Hugo Fair:
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By Curiositykilledthecat
03rd Jul 2022 12:22

Still curious though - when I come is assessed on parents, how is it decided which parent(s) it is assessed on? Is it soli 50/50 or is it dependent on who gave them the shares or other income producing asset - e.g a large bank balance that earns interest?

As for convoluted - this has been set up and the shares gifted, I’m just trying to work out the consequences and/or how to treat the income whilst noticing it’s a real shame the father wasn’t considered earlier.

All thoughts and help welcomed.

Thank you

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Replying to Curiositykilledthecat:
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By David Ex
03rd Jul 2022 12:39

Curiositykilledthecat wrote:

Still curious though - when I come is assessed on parents, how is it decided which parent(s) it is assessed on?

Err, the law?

Think it’s S629 Income Tax (Trading and Other Income) Act 2005 but I might be wrong.

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Replying to Curiositykilledthecat:
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By Paul Crowley
03rd Jul 2022 14:04

Hugo is pointing the way to sort it.
Dad had nothing to do with it but wife could maliciously present him with a tax bill?

Does that sound right to you?

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Replying to Paul Crowley:
ALISK
By atleastisoundknowledgable...
04th Jul 2022 12:52

Paul Crowley wrote:

Hugo is pointing the way to sort it.
Dad had nothing to do with it but wife could maliciously present him with a tax bill?

Does that sound right to you?

HICBTC anyone?

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By lesley.barnes
03rd Jul 2022 10:00

As above who gave them the shares and prior to them giving them the shares what was the shareholding of the parents in the company? What is the share holding now of each parent and the children?

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Replying to lesley.barnes:
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By Curiositykilledthecat
03rd Jul 2022 11:08

See above. It was 100% mother

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By Paul Crowley
03rd Jul 2022 14:47

Sounds daft to me
Best the client learns the effect before taking the action
Why was it not thought that giving dad the shares and leaving them with dad was a possible better option?
If company has not traded, then start again and with a new company get the planning right first time.
Maybe the children could even buy the shares from their birthday money or a gift from Grandma

I somehow think there is a reason why dad is being left out of the planning process

But if Mum is just a contractor with no real trading business, HMRC will consider anything done as a settlement

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-...

Indirect gift of shares from parent
Mr J owns 60 of the 100 issued £1 shares in J Limited. Mr J is the sole company director and is the person responsible for making all the company’s profits because of his knowledge, expertise and hard work. On starting up the company, Mr J allowed his mother to subscribe £40 for 40% of the shares but shortly afterwards she gifted them to her grandchildren. The circumstances are such that the decision to issue 40 shares at par is a bounteous arrangement (as were the shares in Jones v Garnett). The true settlor here is Mr J rather than the children’s grandmother. ITTOIA/S629 therefore applies and attributes the dividends received by the children to Mr J for tax purposes.

But the case referred to was lost by HMRC
https://www.taxinsider.co.uk/arctic-systems-the-good-news-and-the-bad-ne....

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Replying to Paul Crowley:
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By Curiositykilledthecat
03rd Jul 2022 15:25

That’s an amazingly helpful reply. Thank you

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Replying to Paul Crowley:
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By Tax Dragon
04th Jul 2022 05:32

HMRC lost the case - but won on the point they are using in the bit you quote.

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By leeanthonyblackshaw
03rd Jul 2022 16:19

If a bare trust, it also will need to be reported on the trust register by 1 September, unless covered by one of the limited exemptions.

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