Transfer Shares to Family Member: Tax Implications UK

Whether gifting shares for your child’s further education or surprising your spouse with an unconventional Christmas present: shares are the gift that keeps on giving!

Gifting Shares
Gifting Shares to Family

(2 minute read)

This guide covers:

  • How to gift shares to family
  • The tax considerations
  • Where to get help if you need it

How to Gift Shares

Before gifting any shares, ensure you are allowed to do so.

The first step is to review the company’s articles and any Shareholder agreements. Most of the time, there are no restrictions on transferring shares, but you should always check.

Restrictions may be more likely when there are third-party investors, or a company share scheme. If there are restrictions, see if they can be altered.

You can only gift shares from a ‘personal company.’ This criterion is easily checked with the 5% rule; if you own at least 5% of the business you can likely gift shares. Ensure shares are business only and not for personal use.

Most of the company’s money must come from trade. If there is a ‘substantial’ interest in non-trading activity (over 20% of income), you are not eligible. This means buy-to-let landlords may not gift shares.

Tax Implications of Gifting Shares

The key thing to remember is that gifting shares is a method of disposal. Many tax implications stem from this.

Gifts to spouses are exempt from tax. However, gifts to children and other relations are not.

Gifted shares are not subject to Income Tax because they’re covered under the Employment Related Securities rules. However, you must have proper documentation that the shares are a gift and not a benefit-in-kind.

If you run a trading company, you will likely face no Inheritance Tax due to Business Property Relief. This means that although shares are a Potentially Exempt Transfer (they ‘fall out’ of your estate seven years after gifting), there’s no rush to give them away.

The largest tax concern with gifting shares to family is Capital Gains Tax (CGT).

CGT can generally be avoided with Gift Hold-over Relief. This defers CGT until the person you gifted the shares to disposes of them. In theory, this can be used for generations if shares are passed down generations of a family.

If Hold-over Relief is unavailable, gift smaller percentages of shares annually. This allows you to stay within your annual exemptions and avoid unnecessary tax.

Where to get Further Help

Consult an accountant before taking any action to ensure that all documentation is completed to a high standard.

Otherwise, you risk facing unexpected tax burdens.

The Tax Expert Team is always here to guide you through tricky tax problems so you get the best outcome.

Call us at 01772 788200 or use the form below to send us your queries today.

Kind regards Ilyas