Shareholders may want to gift shares to a family member for various reasons. Common reasons include:
- The need to reduce the amount of tax you pay in your household (tax efficiency)
- Support your spouse financially
- Teach your child how to build wealth and become a better manager of family finance
- Helping your children fund their education
- Handing over the reins of your company to a family member
If these sound like some of the reasons you might have, here is a clear and precise guide to how you can gift shares to family.
Before we move on, please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.
Steps to gifting shares
The easiest way to gift shares to a family member involves:
Step 1: completing and signing a share transfer form
The form might also be referred to as a stock transfer form or Form J30. It contains details like the name of the company, your name, ID and address, the class of shares you want to transfer, the amount of shares to be transferred, the reason you are transferring the shares (your reason should be gifting shares), the name of the recipient, their address and their ID. You are then required to sign the form.
Since the transfer of shares, in this case, is a gift, you won’t require to send any certificate to HMRC for stamping or stamp duty payment. You can already start seeing the benefits of gifting shares.
Step 2: submitting the completed form and any attached certificates to the company
Depending on the company or firm you have bought shares from, submitting the completed form can be done via email, a company portal/account or physically. You can enquire from the company about the best and easiest way to do it.
The company receives the share transfer form and inspects it. If there is a mistake, you will be notified so that you can correct it. You then have to wait for the company directors to approve the transfer of the shares. Sometimes, you might be requested to add some documents during processing. Examples of such documents are those that prove that you are the owner of the shares you want to gift your family. Once approved, the company will issue a new share certificate in the name of the new shareholder. The process can take between two to eight weeks.
If you feel like any of the above steps might confuse you, maybe because you have trouble understanding financial matters, it is wise to include your financial advisor.
What are the tax consequences when you gift shares to family?
This is where it gets interesting. If you are not gifting shares to your spouse or charity, it means you are transferring/selling shares (disposing shares); you will pay a tax referred to as capital gains tax.
Selling shares
HMRC has set up a calculator to help you know how much capital gains tax to pay. For example, if you bought 5000 Ordinary shares at the value of £0.02 per share, and the value increased to £15 per share, it means that your shares are now worth £75,000 (5000 x £15). You bought them for £100 (5000 x £0.02), meaning you have capital gains of £74,900 (£75,000 – £100).
If you sell these shares, HMRC will first consider a capital gains tax-free allowance (this allowance changes from time to time; confirm the value from the HMRC website). HMRC will then subtract the allowance from the amount of £74,900, and charge the balance a capital gains tax.
Gifting shares
HMRC exempts you from capital gains tax when you gift shares to your spouse. Looking at the example above, if you gift 5000 shares to your spouse at the new price, you will not be taxed. However, if your spouse decides to sell them, he or she will be subject to capital gains tax.
This is not the same for children. HMRC will tax shares gifted to children. You are only exempt if you are gifting the shares to your spouse, civil partner or a charity.
Can gifting shares be a surprise?
This can be tricky because it depends on the company or broker policies. When transferring shares, the recipient might be called to give particular details about themselves and sign various documents; this can make it difficult for you to surprise them.
You can try to work something out with the company or broker or surprise your spouse with the shares you have bought for yourself and then transfer them later. The latter might be less appealing since the value of a surprise is felt when you are gifted with something you own immediately.
