Hand onto the next generation

 I have come across company owners who own all the shares in their company and want to hand onto the next generation.

They would like to give shares in their company to their children. So what are the implications? of a hand onto the next generation?

It is vital to consider what you want to achieve?

If all the shares are given away to your children you no longer have an interest in the company. If new shares are issued, then you will still own part of the business.

Watch the tax.

If you give away shares, then for capital gains tax purposes your gift is deemed to be a disposal at market value. However, the tax can be deferred as the gain can be held-over until your children sell the shares in the future.

They will inherit the shares at their original cost.  There are more details to be aware of but the purpose of this briefing is not to go into these.

If you gift the shares, then you will receive no value for them and will therefore not be entitled to dividends in the future.

But I would like something for those shares even if I receive no dividends!

And why not! There are tax implications. These are mitigated by a relief called entrepreneurs’ relief which, subject to certain conditions, will mean that you may only pay tax at 10% on the gain.

But how do I find the funds to buy my shares?

Ok this is the difficult bit. There are essentially two choices: Either your children buy the shares from you or your company buys them. The former route is more expensive from a tax point of view and may involve personal debt. The second is more tax efficient and means the company takes on the borrowings if required. This process is known as a company purchasing its own shares and I have been involved in several of these transactions.

If you feel this process is something of interest to you, then contact me, on 07860 898452 or by email awatkin@assyntcf.co.uk

I look forward to hearing from you.

Assynt Corporate Finance Limited, Chartered Accountants, is a member of the Corporate Finance Network which means we can provide access to other accredited national and international firms.  We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

 

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