Can We Gift Shares to Children? Step-by-Step Guide to Transferring Shares to Kids

Ryan Patrick

• 6 min read
Can We Gift Shares to Children? Step-by-Step Guide to Transferring Shares to Kids

Transferring shares to your kids is a way of making them familiarise themselves with the business world and educating them about finance. However, as a limited company, you must consider several vital factors before transferring company shares to your kids. They include company restrictions and tax implications.

For instance, many public and private limited companies prohibit minor shareholders. They include clauses in their company's articles preventing children under 18 from holding shares.

These UK companies prevent children from owning shares because they don't have the legal capacity to enter a contract. This could relieve the company of obligations to its shareholders, complicating its ability to attract fresh investment.

Before transferring shares to your minors, ensure there are no minimum age limits for shareholders in the company's shareholders agreement or articles of association.

Why would you Transfer Shares to your Kids?

There are many reasons why you would transfer shares to your kids. Here are the most common reasons:

  1. Keeping shares in the family: if it's a family-owned business, transferring shares to your kids ensures the business stays within family walls
  2. Tax efficiency: if you're a small investor, gifting your kids shares helps to ease the tax burden by a small percentage
  3. Transferring estate: If you have a considerable share portfolio, you might address inheritance matters by essentially distributing your estate to your children and spouse during your lifetime.
  4. Financial lessons: If you want to instil in your children an interest in finance and investment, you might spark their curiosity by gifting them a portion of your company shares.

Although it sounds reasonable to gift your children shares, consider any restrictions and issues arising during the transfer. It's advisable to consult an attorney or accountant for more advice.

The Process of Transferring Shares to Your Children

There are two steps you can use when transferring your children's shares. They include:

1. Complete and sign the stock transfer form

You must complete and sign the share transfer or J30 forms. This form requires the following information:

  1. The name of the company where shares are held
  2. The sum paid for the shares is known as "consideration money." if you're transferring shares without payment, this should be noted as "Nil."
  3. Number of shares you're transferring
  4. Description of the security: this specifies the category of shares you're transferring, especially if there are multiple classes available
  5. Your name, address, and signature of the current shareholder that is the parent
  6. The name and address of the child receiving the shares
  7. Certificate 1: This section should be filled out if the payment for the shares is £1,000 or less, indicating that no Stamp Duty is required. However, if a parent gives their children shares and "Nil" is recorded in the 'consideration money' section, this part can remain empty.
  8. Certificate 2: These are additional situations where Stamp Duty is not applicable. Since a parent is gifting shares to their children and "Nil" is filled in the 'consideration money' section, this part also doesn't require completion.

When the consideration value exceeds £1,000, the stock transfer form is sent to the HMRC for stamping and to facilitate the payment of Stamp Duty. However, when a parent transfers shares to their children as a gift, this process is unnecessary, and Stamp Duty is not applicable.

2. Submitting the Completed Form

After filling out the form, you must send it to the company with the original share certificate through the company portal, email, or in person. The company members should check the form, and if there are no provisions in its articles of association prohibiting transfers to minors, the share transfer should be approved.

If there is a mistake, the officials will notify you to correct it. Then you will wait for approval for the gift of shares from the company directors.

Share transfer approval is seamless; however, you may need confirmation via a board resolution. If so, board minutes must be documented and circulated.

The new shares will be issued to your kids. This process takes two months of receiving the stock transfer form. The company should keep the form along with share certificates. Records should be updated in the company's register of members and register of transfers.

There's no legal obligation to notify the Companies House of new shareholders or share transfers until when submitting the next confirmation statement.

Can I Gift the Shares to My Child as a Surprise?

Gifting your child shares as a surprise may be challenging, although it depends on the company's policy. Throughout the share transfer procedure, the child may be contacted to authenticate their personal information or to sign certain documents. Thus, maintaining the transfer as a surprise might not be possible.

What are the Tax Implications of Gifting Shares to Your Child?

Here are some tax implications of gifting shares to your kids.

1. Capital Gains Tax (CGT)

The shares you gift your child will be categorized as disposal subject to CGT, unlike when transferring them to a spouse, where CGT is not applicable.

To calculate the level of tax difference, you must work out the difference between share value when they were first purchased and their market value when transferring to the child.

If the amount exceeds £3,000 for the 2024/25 tax year (annual CGT allowance), whether independently or when combined with other CGT within the same year, you will pay a tax rate of 10% or 20%, depending on your Income Tax bracket.

If you intend to transfer many shares to your child, you can spread them in different years to avoid a vast CGT bill and benefit from multiple CGT allowances.

2. Inheritance tax

Suppose you transfer shares to your children, and it's considered a gift for inheritance tax purposes. If the parent (transferor) dies within seven years of making the transfer, the child (transferee) may be responsible for paying Inheritance Tax.

The level of tax the transferee will pay is determined by the years that have passed between when the gift was made and the time of death. This depends on taper relief:

  • 40% when less than three years
  • 32% between 3–4 years
  • 24% for 4–5 years
  • 16% for 5–6 years
  • 8% for 6–7 years
  • 0% seven years or more

You can gift shares worth £3,000 per year without paying any Inheritance Tax, which is an annual exemption. This is the best way to gift your children shares while minimising tax liability. You can carry forward any unused portion of your annual exemption to the following year, but this option is available for only one year.

If you transfer shares to your kids below the market value, the HMRC will consider the difference between the sale price and market value as a gift. This gift is called a Potentially Exempt Transfer, which will be subject to inheritance tax standard rules.

3. Dividends

This is the amount paid to shareholders as a percentage of company-generated profits. Minors can receive the initial £100 of shares or income from savings without tax implications. But anything above this amount is considered as the parent's income for Income Tax purposes. Thus, any potential tax advantages related to share dividends are minimal.

A Junior Individual Savings Account (JISA) permits children to have up to £9,000 worth of shares without tax obligations, with this amount adjusted annually. Children gain control of a JISA at 16 but cannot access funds until they reach 18.

An alternative for JISA is for you, as a parent, to create trust for your children. In this case, you (the settlor) can invest shares in a trust specifying the beneficiaries (kids). Then, you should appoint a trustee to manage the trust.

There are various types of trusts, but the most ideal for managing assets for your kids' trust is called bare trust. When the children reach 18 in England or 16 in Scotland, they can access and sell shares in the trust.

Form Your Company with Incorpuk Today

At Incorpuk, we will help you through the company formation process and file your confirmation statements to help your business stay compliant. Whether you're a UK resident or a non-UK resident, our team is ready to provide guidance and help you establish your company in the UK. Contact us here today.

Final Thought

The best way to alleviate worries about your kids' future is by gifting them shares, especially if your company articles don't prohibit it. Gifting your children's shares also has other benefits, such as minimising tax liabilities and securing their future.

However, as a parent, you should consider the tax implications and the legal procedures. The process of share transfer is straightforward when there are no restrictions. The process takes two months at most. If you want to transfer a considerable amount of shares you can do it in bits for several years to minimise tax liability. You may also consult legal or financial professionals to ensure a smooth and advantageous process for transferring shares to the next generation. If you have any questions about transferring shares to kids, don’t hesitate to contact us here, and we’ll do everything we can to help.