Gifting Shares to Family Members UK

Transferring shares to family members in a family-owned business is a practice embraced by many to either reward a relative’s dedication to the company or as a strategic move for succession planning. However, the process of gifting shares, especially to a relative who actively participates in the business, can often lead to complex tax considerations. The person receiving the shares may not be in a financial position to purchase them outright, prompting many to explore the possibility of gifting. This approach, while seemingly straightforward, involves navigating through a myriad of tax implications, including income tax, capital gains tax, inheritance tax, and stamp duty. Understanding how these taxes apply and what reliefs may be available is vital for anyone considering this route to ensure compliance with tax laws and to potentially mitigate tax liabilities.

Tax implications of gifting shares to family members uk

If an employee of a company receives “free” shares, for example, if you are gifting shares to family members uk 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 to family members in the UK is for reasons of family or personal relations, the income tax charge may not apply.

Gifting shares to family members uk 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. The problem in the case of a gift is that the person making the disposal receives no monies out of which to pay any capital gains tax which may arise (the gift is treated as a sale at market value). This may discourage family members from making gifts as part of any family tax planning mitigation exercise.

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. Gift relief is designed to alleviate this problem; it permits the capital gain (and thus any tax liability) which is deemed to arise to be postponed. It does this by effectively transferring the capital gain to the recipient of the gift. To claim gift 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 family members uk. 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 gifting shares to family members, it is important to 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. Contact Paddy Harty or a member of our tax team today.