If you run a limited company and have children, you can give them a stake in the business and provide them with the opportunity to benefit from any profit the business makes by making them shareholders.
If your children are of an age where they can attend university, giving them shares can provide them with a stream of income which can help towards the cost of rent, books or living expenses. It can also be beneficial for tax purposes to make your children shareholders, but before you go distributing shares, here are some things to consider first.
There is no legal ruling which states that you can’t make your children shareholders in your limited company. However, if your children are under 18, any gross income above £100 they receive is taxable and as they are legally classed as minors their tax liability passes onto you as their parents.
So, if you are looking to reduce your tax liability, giving children under 18 shares is not advisable.
Children over 18
If you have adult offspring (aged over 18 years) the parental settlement doesn’t apply, so any gross income they receive over £100 is taxable. However, if the shares are their only source of income, for the tax year 2019/20 they could get up to £14,500 tax-free. This figure is made up of the £12,500 personal allowance plus the £2,000 dividend tax allowance.
If your children are aged over 18, it is possible to make tax savings, but this should only be done under the supervision of an experienced contractor accountant.
Another major consideration when giving children shares is capital gains. Any shares which are passed onto children are classed as a disposal for Capital Gains Tax purposes which means you could find yourself receiving a Capital Gains Tax bill.
You will be required to calculate the value of the capital gain by looking at the original value of the shares and the value at the time of passing them onto your children. You will have to pay tax on the value of shares which come above your annual capital gains allowance (£12,00 for 2019/20 tax year). You’ll also have to pay tax if you’ve already used up your allowance for this current tax year.
Families are complicated and it’s important that you approach passing shares onto children with caution. If you have younger children, they may resent the fact that their older sibling(s) is receiving shares and they aren’t. Plus, giving away too many shares to children could tip the balance of control in the business and your children may choose to outvote you. This may seem ridiculous and while it’s unlikely to happen, it should always be a consideration.
Prior to giving children shares in your limited company, it’s important that you first seek professional advice. With over twenty year’s experience working with limited companies, our Directors are aware of the in’s and outs of adding shareholders. Give one of them a call on 01962 8675550 or send us a message via our website.