As a business owner, you might have considered gifting shares to your family members. But what are the tax implications of gifting shares to family in the UK?
We will cover:
- The main benefits of gifting shares to your family
- The tax differences between transferring shares to your spouse or to your children
Gifting shares to spouse
The key difference is that you don’t pay Capital Gains Tax when gifting shares to your spouse or civil partner in the UK, but you pay it when gifting shares to children.
How to gift shares to family
The process of gifting shares consists of two steps:
- Complete and sign the share transfer form
You must complete and sign the share transfer form, also known as the stock transfer form or J30 form. The form requires various details about the giver to be filled.
- Submit the completed form with any attached certificates to the company
Send the necessary documents to the company officials to be approved. The company might ask for additional documents to prove you bought the shares which you’re about to gift.
Gifting shares tax implications UK
In case you do gift shares to someone other than your spouse, these are the tax implications:
Capital Gains Tax – as mentioned previously, you must pay CGT when gifting shares to children in the UK, because to HMRC it means you’re selling or transferring the shares.
IHT – If you are transferring or gifting shares to your children, it is treated as a gift for inheritance tax. This is because there’s a difference between the market value and the sale price, known as a Potentially Exempt Transfer (PET). If the parent dies within seven years of transferring the shares, the children will be liable to pay Inheritance Tax. However, the amount of tax you pay can be influenced by Taper Relief (more on this below).
Stamp Duty – you don’t have to pay Stamp Duty when making gifts.
Is any gift relief available?
Yes, you can reduce or remove your tax liability in some cases when gifting shares to family:
Business Property Relief – if the company is a trading company, there may be no hurry to gift shares to the next generation as BPR applies. Business Property Relief allows families to benefit from IHT relief. However, the company might change and become an investment company, which in that case it’s safer to secure the IHT relief by making regular gifts to family members.
Gift Hold-Over Relief – Gift Hold-Over Relief postpones tax on the chargeable gain, for the share is eventually sold. The relief allows you to gift shares without a tax charge. The chargeable gain is the increase in the share’s value between the time it is purchased and the time it is sold, which becomes subject to CGT.
Taper Relief – The amount of due tax would be calculated by the number of years between the date of the gift and the date of the death. This is based on a sliding scale, also known as Taper Relief, which states:
40% for less than three years
32% for three to four years
24% for four to five years
15% for five to six years
8% for six to seven years
You must always take caution when gifting shares to family, because although there are benefits in doing so, doing it without adequate planning might result in an unexpected tax bill.
It’s a complicated issue, so you should always seek professional help from a financial adviser or tax expert.
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