Minor and dividends

[Manj007]

Hi all

I wish to make my brother, sister-in-law and niece (15 years old) shareholders in my Ltd company. They are struggling financially so would like to help them out and pay them dividends.

My accountant is advising against it as it would dilute my share in the business (which I have no concern over as I trust them) and secondly to exclude my niece as any dividends paid to her will be classed as those of her parents and could result in them paying dividend tax at 7.5%.

Please advise if there is anything wrong against paying my niece dividends.

Thanks in advance for your guidance.

Manj007

[AmanSood]

Nothing wrong with paying your Niece dividends. However, any dividends received by your Niece would need to be declared as income for her parents as she is a minor.

[Manj007]

Nothing wrong with paying your Niece dividends. However, any dividends received by your Niece would need to be declared as income for her parents as she is a minor.

Thanks for your reply. I've read that minors also have a personal allowance and the £5k dividend allowance also applies to minors. If minors have an allowance then surely their dividend payment won't be classed as parents income? If it does, then why allow children to have a £5k dividend allowance?

Thanks again on advance

[maths]

Amansood
Could you point to the relevant legislation to support your statement please?

[Manj007]

Amansood
Could you point to the relevant legislation to support your statement please?

Maths - are you agreeing with what I'm saying then? My accountant seems lost too....

[bd6759]

Maths is saying that Amansood is wrong. Minors are liable to tax on their own income.

[LozaACCS]

I assume Amansood is referring to S 629 ITTOIA 2005, which can create a parental settlement trust where the beneficiary is a minor child, unmarried and not in a civil partnership, for S629 to bite however (as Maths well knows) the income would have to be distributed, if the minor were a child of the settlor then if the income exceeds £100 the whole amount is treated by virtue of S629 as income of the settlor and taxed at his marginal rates.
Because the minor is not a child of the settlor the avoidance rule is not in point but it certainly would be if he/she were.
There might alternatively be a possible claim for a vulnerable persons trust under FA 2005 if section 38 or 39 is met.

[Manj007]

So, will my brother be liable for paying tax on dividends paid to my niece?

[AnthonyR]

Not unless your brother has in some way made a "settlement" to your niece.

If for example your brother gave you his shares first and you gave them to your niece, or your brother paid you to gift them to her then this would be considered a settlement.

If you are simply gifting the shares to family members to help them out (with no connected arrangements) then the settlements provisions will not apply and your niece will be subject to tax personally (if her income exceeds her allowances).

[maths]

It is not the first time I have asked Amansood for support for his views expressed in response to a query and failed to get any reply. This approach is not I feel helpful either to the original poster or persons (such as myself) seeking to understand the reasons for a particular response.

Assuming that the gifts are intended to be outright gifts (ie a transfer of both legal title and beneficial interest) and there are no other surrounding circumstances the minor will be liable on any dividend income arising on the shares and to any reliefs thereon as would an adult. The settlement provisions with respect to income tax are irrelevant and her father/mother will not be subject to income tax on her income.

Reference to vulnerable persons trusts is a complete red herring based on the information provided.

Sometimes a company's Article of Association prohibit minors as registered shareholders but his may readily overcome by having, typically, a parent to be the registered shareholder qua bare trustee.