New Dividend Tax 2016

[tudou]

Hello Guys,

I will be doing my first contract in the new year, and I am now setting up my limited company. Considering the change in the dividend tax, I was told that I could add my two children (both are under 10 years old) as share holders, so I can make the best use of the £5,000 dividend tax allowance. However I have read elsewhere that there is a £100 rule, so I am not sure if I can still benefit from doing this?

Will appreciate if anyone can give any advice.

Thanks.

[Waldorf]

Don't even think about it.

You would be caught out by the income shifting rules, Google Arctic Systems. The exemption was only for spouses, kids are not covered.

Additionally, if you gift assets to your kids then any income in excess of £100 should be declared on your tax return, so you save nothing.

[tudou]

Many thanks for the response! Looks like it's a no go then...

[mudskipper]

....I was told that I could add my two children (both are under 10 years old) as share holders...

Who told you that?

[northernladuk]

Don't forget to get an accountant and get some proper advice.

[jamesbrown]

Who told you that?

His kids

[northernladuk]

However I have read elsewhere that there is a £100 rule, so I am not sure if I can still benefit from doing this?

If you managed to read this how come you didn't read further and understand it better? Plenty of articles on it on google.. like this one...

Contractor Doctor: Can I give children shares in my contracting company to save tax?

[TheCyclingProgrammer]

Whoever told you is an idiot. I suggest you (and they) read s629 of the settlements legislation.

TSEM4300 - Settlements legislation: settlement for unmarried minor child: settlements legislation

The £100 rule you speak of does exist though, but it doesn't really help you unless you intend to restrict their dividends somehow to £100/year.

http://www.hmrc.gov.uk/manuals/tsemmanual/tsem4310.htm

[ASB]

It may also be worth pointing out that anybody under 18 cannot own shares anyway. As such they need to be in trust anyway. (It is a practical rather than legal thing. Articles often prohibit under 18s as shareholders and banks often will not provide banking services because they may be unable to enforce any contracts entered into or obtain adequate shareholder consent).

it may be possible to do something with a discretionary accumulation and maintenence trust to non specific beneficiaries but that would probably still be difficult where the settlor was a parent. An interest in possession arrangment may also be useful.

A simple bare trust would probably be the most common way.

also only really any good for a permanent arrangement since it seems reasonable that the property would be required back at some future point.

if the kids purchased the shares - at a fair market price - from money which was their own resources - I.e. in no way from parental gifts then it should be possible to show there is no settlement.

actually establishing this would be hugely expensive since it would sooner or later get challengeg by hmrc.