Can I give my children shares in my company and pay them dividends?

Not if they are under 18 and unmarried. Dividends on shares you gave to your own minor child are taxed as your income once they go above £100 a year, under section 629 of ITTOIA 2005. A child aged 18 or over is different, because the rule stops applying to income arising after they turn 18.

Why people ask

A child has the same personal allowance and dividend allowance as an adult. On paper, shares in a family company look like a way to use two sets of allowances that would otherwise go unused.

The rule for minor children

Section 629 of ITTOIA 2005 deals with this. If an unmarried child under 18 receives income from something a parent has given them, the income is treated as the parent's, and not the child's. The rule covers step-children, including the child of a civil partner. It applies only where the income from that parent's gifts goes above £100 in a tax year, and if it does, the whole amount is taxed on the parent, not just the excess.

HMRC's manual gives a plain example. Mr and Mrs X each own 50 of the 100 shares in their company. They each give 10 shares to each of their children, aged 12 and 15. HMRC treats the dividends on those shares as the parents' income.

Trusts do not fix it

Putting the shares in a trust for the child does not change the answer. For a bare trust, the income belongs to the child and is treated as the parent's whether or not it is paid out. A payment from a discretionary trust to a minor child is treated as the parent's income too.

HMRC Spotlight 62

In June 2023 HMRC published Spotlight 62 on a marketed scheme to fund school fees. The company issues a new class of shares. A grandparent or a sibling of the owner buys them for much less than market value, then gives them to the children or to a trust for them. The dividends pay the fees. HMRC says it does not work and that the dividends are taxed on the parent. People using it are told to withdraw and settle.

Grandparents

There is a difference between a grandparent who genuinely holds shares and gives some to a grandchild from their own resources, and shares that the parents have arranged to pass through a grandparent. HMRC's manual has an example where a mother subscribed £40 for 40% of her son's company when it started and soon gave the shares to her grandchildren. The dividends were treated as the son's income. The facts decide each case.

After 18

The parental rule stops applying to income arising once the child turns 18 or marries. From then, dividends are taxed as the child's own, provided the gift is real and unconditional and the money is not returned to you. If your child also works for the company, the share gift needs checking under the employment-related securities rules.

What to do instead

• Pay for school or university from your own after-tax income, or from a salary the child genuinely earns for real work.
• Consider pension contributions or a Junior ISA funded from your own money.
• If you want to give shares to adult children, make it an outright gift of ordinary shares. See our page on spousal dividends for what makes a gift outright.

Sources: HMRC manual TSEM4300: settlements on unmarried minor children · HMRC manual TSEM4310: the £100 limit · ATT on HMRC Spotlight 62