Gifting Shares Guide for UK Startups and Companies
19 December 2019
For those filled with generosity, it may be common for a shareowner to want to gift shares as a gift to other shareowners or shareholders, or even to family members. Gifting shares even has advantages if you choose to give them to your significant other, husband or wife, as it is free of Capital Gains Tax (CGT)!
If the idea of gifting shares seems attractive to you, in terms of gifts to other people, there are many ways to do it, some of which are simpler than others. One way to gift shares to other people is to make a transfer of the shares to the people you want to gift. However, they will need to be part of the same share platform to receive them.
In terms of using a share platform, the only way you can do the transaction is electronically. Even with the increase in demand, it is still a pretty intuitive transaction to do. If those who you want to gift the stocks to do not have an account in any stock platforms, they can easily create one to get started. Just be sure to reassure them that it will be for a good reason.
Everyone has the right to an annual gift margin of £3,000 or less which will be free of taxes. This can be moved only to the next financial year, which means you can gift stocks without them being added to the value of your estate for purposes of inheritance taxes. But stock gifting is not as simple as it may seem. There are many factors the need to be taken into consideration, including income tax, and other charges and duties.
Learn below more about this topic in this article created by our team at TMS.
Buying Shares and Gifting Them
You may decide to gift shares for a number of reasons. Maybe it is because you want to help them build their savings, or maybe you want to gift a stock as a symbol of something, such as a company that the other person, or both of you, have appreciation for.
Giving stocks as a gift may seem like a complicated thing, but it is not impossible! Here are some notes to take into consideration before doing gifting stocks:
- You can buy stocks with no need to open an account. You will still receive a stock certificate, which you can save at home.
- If you still choose to open a digital account, they are simple to use, and most only charge for transactions, meaning you will not have other associated costs.
- If you are gifting shares as an investment, remember that picking the right stocks can be tricky, and should be well thought out.
- If you choose all your stocks from the same company, all the investments will be in one place. If the company fails, the stocks will go down with it.
Whatever you decide to do, do not forget to get the other person’s consent. This means that this type of gift will come without the element of surprise.
Gifting Shares to Children
Gaining the interest and attention of younger children in investment can be very important. Gifting stocks to children can help them learn about finances and the market world. Sometimes, families may want to pass on stocks to children because of the emotional attachment they have to the company. Others just think that the shares can become a good investment in the future.
If you are considering buying stock as a gift for children, there are several things you should take into consideration. Unlike gifting them to your partner or significant other, shares given to minors will be classified as a disposal of capital gains for tax purposes. This means you can receive a charge for gifting the shares.
As the present is being offered to someone as a third party, it is considered disposal at market value. In this case, the person making the purchase receives no funds to pay the CGT that may occur. The present is considered as a sale at its real market value, which can be discouraging family members, who may want to think twice before gifting stocks.
CGT needs to be paid on any value, even though there is no consideration to be paid. However, it is possible to minimize the capital gain under certain conditions, on shares given to Nil. Gift relief is built to avoid this problem. It allows the capital gain and any tax liability to be delayed. This is done by giving the capital gain to the done. To take advantage of this, you need to make the right submission to HMRC.
For inheritance tax purposes, gifting shares to your child is considered as a lifetime transfer. According to the law, if you live for seven more years after you gift the stock to your children, there are no inheritance tax consequences. In the event of your death in the seven-year period, a business property relied tax may also be available on the transfer. This can also reduce some potential exposure to inheritance tax to Nil.
You will need to evaluate whether or not there would be any increase between the value of the stocks at the time they were bought and their market value when you transfer them to your children.
Gifting Shares to Your Significant Other
Giving stocks as a gift to a spouse is a very common occurrence nowadays, especially for those who own businesses or are part of the financial world. In this case, it usually happens when one person opens a business and their spouse is working for them.
They can be working on the business full-time or part-time, or maybe they are just registered in the company as workers but doing other things, at home or with their own business.
Here is how to gift stocks to your spouse:
- Get stock transfer acts – one for each of your companies – from the company administration or a legal stationer.
- Fill them out and send them back to the company administration, who will perform the transfer action without any charges.
- When your spouse receives them, they will have the same value as when you bought them and they will not receive revaluation.
- You can ask for another person to perform it for you, such as a broker or a lawyer. In this case, there will be charges. Compare the alternatives.
There are two very important capital tax matters to consider when giving stocks as gifts to your family: Capital Gains Tax (CGT) and Inheritance Tax (IHT).
Gifting business assets, including stocks in a trading company, is regarded to take place at market value among parties that are connected, even though no consideration is passing. Usually, this means that a capital gain arises, being the difference between the cost of the shares to you (zero if the company is yours) and the market value of the stock at the time it is gifted.
However, there is a generous relief related to these stocks and shares, which is known as the “Hold Over Relief”. It allows you and the gifted person to choose to have the gain that normally occurs on the transfer of the shares to be delayed. This way, it is only charged when the gifted person sells the shares.
You do not have to pay CGT if you gift stocks to your partner. However, you will have to pay if:
- You were not living together in the same house in the tax year in question.
- You gave them assets for their business to negotiate.
- The tax period is from 6 to 5 of April of the next year.
- The person that received the gift might have some charges if they dispose of the share later.
- The gain or loss of the share is calculated with the base on the date that you acquired it. It can also be based on the date that they received it, depending on the specific circumstances.
Gifting Stocks to Charity Causes and Associations
You do not have to pay any taxes if you gift stocks to charity. However, you might have to pay if you sell the assets for more than you paid for it or for less than the market value. You can get tax relief in certain shares gifted to charity as a deduction against their income for tax purposes. This results in an addition to the exemption from capital gains.
The value of the tax relief depends on the person’s salary and the value of the gift. If the donor’s marginal tax rate is 40%, and the income is around 100,000 pounds taxed at 40%, the tax liability will be reduced by 40,000 pounds.
When donating shares and stocks to charity associations, consider these:
- Calculate the gain using the quantity the charity pays you, instead of the value of the stock.
- Keep records of the gift to prove that you have offered the gift and the charity accepted it. This will prevent any problems happening in the future related to your donation.
- When you gift land, property, or shares, the charity can request that you try to sell the gifts in its name. You can sell the gift and make a request for tax relief for the donation that you made. You must keep the information on the gifted stock and the request made by the charity. If you miss this, you might have to pay CGT.
Things you Should Know
Gifting Shares is Similar to a Relationship
Gifting shares to someone is a lot like being married, in the sense that once it is done, it is difficult to end or get rid of. In fact, when someone owns a part of your company, it is even harder to take it back than getting divorced.
You can try to get them back by buying them, but it may still be very difficult. If the value of your company grows, the people that own the shares will not want to give them back to you, as they will want to profit from the growth of the company, too.
Informing Companies House of Shares that were Transferred to Another Person
In an ideal situation, the Companies House should be informed of any changes in shares on the next Confirmation Statement. You can also update this information right away if you want the transfer registered on the official record afterward. This is especially important to avoid any mistakes or issues with these types of records.
It is recommended that you do a confirmation statement right away in case you open a banking account or contracting with a person outside of the contract. You should also inform Companies House of any changes within the period of 28 days after the transfer using specific forms, commonly designated the PSC01-09.
If you enjoyed reading this article on gifting shares, you should check out this one about startup failure.
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