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Should we give shares to children and pay £5,000 dividends tax free?
The introduction of the £5,000 tax free dividend allowance has tempted many family company shareholders to give shares to other family members so that they can be paid £5,000 a year tax free. (Note that this allowance reduces to £2,000 from 6 April 2018).
Such a strategy needs to be carefully structured as there can be Capital Gains Tax on the gift of shares, and HMRC may also seek to tax the dividend as employment income under certain circumstances. The dividend will also be taxed on the parents if received by a child who is a minor.
If you are considering giving shares to other family members and then paying dividends, please come and talk to us first so that we can deal with this correctly.