When the annual rush to file income tax returns is finished, it is worth while considering long term issues facing a family business.
One aspect that should be considered is the ownership of close family members of shares in the family business.
There are three main tax heads to consider where shares in family business are gifted from a parent to a child. They are capital gains taxes, capital acquisitions taxes and stamp duty. 1. Capital gain tax is payable by a parent on the disposal of shares in a family company. Retirement relief is available in some cases, which allows for an exemption from capital gains tax.
The parent gifting the shares must be over 55 years of age, must have held the shares for a ten-year period and have been a full-time director of the company to qualify for this exemption. The firm must also be a trading company and the child receiving the shares must hold onto the shares for at least six years after the gift.
2. Capital acquisitions tax is payable by a child on the receipt of a gift of shares in a family company from a parent. The rate applies to the market value of the shares in the company if there have been no previous gifts or inheritances. There is a relief from capital acquisitions tax known as business property relief, which exempts 90% of the market value of the shares.
3. Stamp duty applies to the transfer of shares in a company. A gift of shares from a parent to a child is liable to stamp duty at 1% of the market value of shares and is payable by the child. It is important that parents and children adopt a planned approach to succession to shareholding in the business over an appropriate time frame.
We shall be happy to assist you with your tax and financial planning and setting out your plan for exiting your business.
If you require more information please consult your tax advisor or email us at tax@fixmytax.com.
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