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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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!
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.
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?
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?
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?
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....
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.