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Where Taxpayers and Advisers Meet

Tax on Child's Dividend Income

Kevinm
Posts:12
Joined:Wed Aug 06, 2008 3:35 pm
Tax on Child's Dividend Income

Postby Kevinm » Thu Jun 09, 2022 10:45 am

Hi
My wife & have gifted shares in our family company to our granddaughter (age 3) & 2 children of our nephew (aged under 12) over the last 3 tax years . We have kept the value of & gains on the gifts below the CGT limits each year & have had no other CG to report.
We have paid dividends to the children below £2,000 each year in the past 2 years & they have had no other income apart from small amount of bank interest -below £200.
From my reading of HMRC info I think we did not need to report these children's dividends as below £2,000 ?
My question are now we would like to pay dividends to the children in excess of £2,000.
A) Can these dividends in excess of £2,000 be set against their unused personal allowances ?
B) would they need to register for self assessment & fill up tax returns ?
Thank you

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm

Re: Tax on Child's Dividend Income

Postby Jholm » Thu Jun 09, 2022 12:22 pm

Have you considered using a trust?

Kevinm
Posts:12
Joined:Wed Aug 06, 2008 3:35 pm

Re: Tax on Child's Dividend Income

Postby Kevinm » Thu Jun 09, 2022 1:08 pm

Thanks for reply.
Not considered trust -Prob because I don't know advantages of a trust in these circumstances & assume there would be costs to set up & administer.
I don't want control or any say in what is done with the money but open to suggestions.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Tax on Child's Dividend Income

Postby maths » Fri Jun 10, 2022 3:23 pm

Each child is liable to any dividend income against which the dividend allowance and their personal allowance may be offset.

Each child needs to file their own tax return.

If the shares are registered in your/wife's name presumably you each executed a declaration of trust confirming that you hold the shares on behalf of each child. You/wife will in this case be bare trustees; as above, only the children will need to file a tax return and discharge any income tax liability.

Kevinm
Posts:12
Joined:Wed Aug 06, 2008 3:35 pm

Re: Tax on Child's Dividend Income

Postby Kevinm » Sun Jun 12, 2022 7:23 pm

In case of any interest to anyone else in same position I got to speak to an HMRC Dividends specialist via normal enquiry number on Friday.
He told me that as 'maths' said below that each child could receive £14,570 in Divs before any tax was due provided they had no other income. (ie Dividend Allowance £2,000 plus PA's £12,570)
Interestingly he assured me the Children do not have to fill up a tax return if their Div & any other income is below these figures.
HMRC web site talks about notifying HMRC if Div income is over £10k so code can be adjusted if Div is not only income. However the officer told me this was not needed as long as records were kept & the Div income & any other was below £14,570.
It will be below that - so a good result.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Tax on Child's Dividend Income

Postby robbob » Mon Jun 13, 2022 9:01 am

In case of any interest to anyone else in same position I got to speak to an HMRC Dividends specialist via normal enquiry number on Friday.

Be very careful about trusting anything any hmrc officer says
He told me that as 'maths' said below that each child could receive £14,570 in Divs before any tax was due provided they had no other income. (ie Dividend Allowance £2,000 plus PA's £12,570)
I suspect they would have been silent on the question as to whether that income may infact be taxed on the parents if the asset generating dividends has come from the parents originally.

Note the hmrc officer statement here is just confirming the VERY obvious that potentially pa + 2k on top - no revelations here
Interestingly he assured me the Children do not have to fill up a tax return if their Div & any other income is below these figures.
I would agree legislation supports the fact if no tax to pay probably no tax return to complete - however the advise you have been given by that hmrc officer is at odds with official hmrc policy - if they know anyone has over £10,000 of savings income (including dividends) they will request a tax return be completed - note this trumps the "no return needed" so as soon as you mention dividends over 10k to any hmrc officer who deals with issuing tax returns - they will issue a return and the return must therefore be completed. This fact is confirmed in the q&a below -0 so i doubt you will get any other hmrc oficer who will agree no return needed if dividedend income 14k.
HMRC web site talks about notifying HMRC if Div income is over £10k so code can be adjusted if Div is not only income. However the officer told me this was not needed as long as records were kept & the Div income & any other was below £14,570.
Hopewfully covered by above IMHO hmrc will issue tax reyturn when you notify and demand submission despite what taht office has said

https://www.gov.uk/check-if-you-need-tax-return
However the officer told me this was not needed as long as records were kept & the Div income & any other was below £14,570.
It will be below that - so a good result.
Personally if hmrc is saying "ignore what we say in black and white" i would want that fact confirmed in writing by said hmrc officer. To be fair to the hmrc officer they may very well know the law better than their own manual but don't expect them to confirm that fact in writing.


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