How gifting shares in your dental practice to your children could ease your tax burden  

  Posted by: Dental Design      23rd April 2022

If you are a relatively new dental practice owner, and therefore your business is still fairly young, giving shares in your company to your children now can constitute good long-term tax planning. If you have taken the right guidance from a specialist dental accountant, you won’t be falling foul of any HMRC rules either – you are simply taking steps to organise your future affairs. It is also possible to transfer your shares, or create a separate class of shares to give to them (more on this below), without triggering capital gains tax (CGT) too.

In a new business, where the amount of profit built is likely to be low, so will the value of its shares, keeping CGT liability to a minimum. If you have children under 18, and you transfer shares to them, something called “settlements legislation” applies to any dividends paid, meaning that these will be treated as your income for tax purposes.

Dividends on your children’s shares will be part of their taxable income, with the assumption being that they will be on the dividend nil-rate band, and basic tax band. When they reach 18 you can pay them a tax-free dividend rather than dip into your savings when (not if!) they need cash for university, vocational training, travelling etc.

In the short term, you will be paying tax on your children’s dividends. You could choose to just accept the tax bill, or you could create a separate class of company shares to allot to your children. If you do go for the latter option, you could give the shares a fixed rate of return, or no voting rights. If shares have a value around par (stated/face value) then you will not only be able to predict the CGT better, but you will avoid any arguments about valuation with HMRC.

Basically, then, because any tax advantages of transferring shares in your dental business is long and not short term, this is anti-tax-avoidance planning. So, you should not be breaking any rules that will get you into trouble with HMRC. Ensure that you have fully understood all potential issues, including the restrictions, that will come with your actions. And although the process for transferring shares to your children is the same as it would be if you were transferring them to anyone else, don’t do anything without getting quality advice first! Speak to someone with the knowledge and experience to help guide your long as well as short-term tax planning. Figurit specialist dental accountants have worked with the dental sector for many years, giving clients in the industry confidence in a wide range of tax planning measures. We can help you optimise your personal and business finances and achieve your long-term goals, with room to change the goal posts if you need to.

Gifting share in your practice to your children can gain you extra profit. Stick to the rules, seek out and listen to the experts and HMRC should not trouble you. You could also have a stream of funds for your children, in the form of a tax-free dividend, when the reach the age of 18, so you can keep your savings intact. As an added bonus, will your children gain an interest in finance, investment and your company as a whole? Perhaps! There are key and fundamental differences between good tax planning and avoidance, and giving company shares to your children is an excellent illustration of the former. Get advice, ensure you stay within the rules and you will be looking to the future in a tax-efficient manner.

For more information, please visit https://figurit.com
or call Figurit on 020 7376 9333.