Save tax by adding your children to your business
Written by Nick Moulds on 1st November 2018 in General Tax

Among numerous advantages to starting a family business the additional tax benefits available make a compelling case for sharing your business income with your children.

If you choose to do so, each child is entitled to the same £11,850 income tax personal allowance as their parents.  They also qualify for capital gains tax allowances and reliefs.

So how does it work?

Provided that the parents earn over £8,333, they can enrich a son or daughter by a certain amount, provided that this amount (and any additional income) remains under £11,850.  So for example, if you provide your child with £5000 – the maximum value at which your starting savings percentage rate is 0% – and they have no further income, this would indirectly save your business £3,333.

It can be difficult at first to make heads or tails of the figures, so it’s important that you discuss these benefits with your accountant and receive direct tax advice about what this could mean for you.  At Moulds & Co Accountants, we would always recommend seeking effective tax advice and assistance from a qualified and experienced tax advisor where possible.

Can I go right ahead and give my child £5,000?

The key to bringing your children in to the business is to make sure that any involvement is commercially justifiable. For example, paying your ten-year-old £5000 a year for bookkeeping is clearly incorrect. HMRC can spot this misleading information and as such you should always aim to pay realistic rates for any role given.

What about a transfer of shares?

If you transfer shares in your company to children under 18 years of age, any dividend income more than £100 will be taxed as if received by the parent.

How about contributing to their school or university fees?

You might now be thinking whether children can be paid salaries or dividends as a contribution to school or university fees. You can make these payments, so long as you ensure that:

  • Salary payments are commercially sound (as discussed above),
  • The payments must be made from the business to your children
  • Dividends are only paid to children aged 18 years or over.

Once received, they can use the cash however they, or you, see fit.

Finally, transferring shares or assets to your children is a chargeable event for capital gains tax purposes, however there are reliefs you can claim to defer any tax payable. Speaking to a knowledgeable tax advisor can ensure that you make the most out of this opportunity, become full aware of your available options and stay on the right side of HMRC in the process.

How we can help – There’s a lot to take in but to put it simply, there are tax advantages to be gained from employing or sharing your business ownership with your children. The steps that need to be taken in each case will depend on your personal circumstances and as such, we would recommend speaking to a qualified tax advisor before making your decision. Our Wetherby accounts team and experienced tax advisors at Moulds & Co Accountants can offer personalised and clear advice to ensure that you head in the right direction. To speak to a member of the Moulds and Co team, call 01937 584188 to hear how we can help.

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