Accounting Matters
with PKF FPM

Fergal McCormack


Succession Planning

Question
I own a small family trading company and my son has joined the business and has been employed for the last year. I would like to gift him 25% of my share-holding. Will he have any tax to pay if I do this?

Answer.
There are various taxes that need to be considered on a gift of shares to your son, such as income tax, capital gains tax, inheritance tax and stamp duty.

If an employee of a company receives “free” shares, for example if you make a gift of shares to your son who works in the family business, an income tax charge could arise on the market value of the shares gifted. However, if it can be demonstrated that the transfer of shares is for reasons of family or personal relations, the income tax charge may not apply.

A gift of shares from you to your son is also a deemed disposal of shares for capital gains tax purposes. As the gift is being made to a connected party, it is a deemed disposal at market value. Therefore, capital gains tax is payable on any gain arising even though no consideration is paid. However, providing certain conditions are met it may be possible to reduce the capital gain on the shares gifted to Nil. To claim this special relief the appropriate submissions must be made to HMRC.

Stamp duty is also normally payable on the issue or sale of shares and it is payable by the person receiving or acquiring the shares. However, if the shares are gifted and no consideration is paid a stamp duty gift exemption relief can be claimed which is likely to reduce the stamp duty costs to nil.

For inheritance tax purposes, a gift of shares from you to your son would constitute what is known as a lifetime transfer. Based on the current legislation, if you survive 7 years from the date of the gift, there should be no inheritance tax consequences on the transfer of shares to your son. In the event of your death within 7 years of the gift, an inheritance tax relief called Business Property Relief may also be available on the transfer providing certain conditions are met. This could also reduce any potential exposure to inheritance tax to Nil.

Before any transfer of shares takes place, we would recommend that you seek professional advice to ensure that the available reliefs are applicable to your particular circumstances and also to ensure that the various conditions for each tax relief are fulfilled.

The advice above is specific to the facts surrounding the questions posed.  Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Email: f.mccormack@pkffpm.com

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