Gifting Shares in a Family Business: What to Consider for Tax and Succession Planning
By Georgia Holmes
Explore the tax and succession implications of gifting shares in a family business, including Capital Gains Tax, Inheritance Tax reliefs, retaining control and planning a smooth transfer to the next generation.
Gifting shares in a family business can be an effective way to pass wealth to the next generation, prepare a successor to take over and help shape the future of a company you have spent years building. But transferring ownership is about more than signing over shares. It can affect your tax position, your control of the business and the financial security of both you and your family.
The right approach depends on the company’s structure, the value of the shares, who will receive them and what you want to achieve. Understanding the tax rules and succession implications before making a gift can help you avoid costly surprises.
Why gift shares in a family business?
There are several reasons why a business owner might transfer shares to children or other family members during their lifetime.
Preparing the next generation: Giving a family member a stake can help them become involved in the business before taking on greater responsibility.
Passing on wealth: Shares may represent a substantial part of your personal wealth. Gifting some of them can begin transferring that value while you are still alive.
Planning for Inheritance Tax: A lifetime gift may reduce the value of your estate, although the outcome depends on the circumstances and whether relevant reliefs apply.
Sharing future growth: Transferring shares before the business grows further may allow the recipient to benefit from future increases in value.
However, gifting shares is not automatically the best option. You may need to retain income from the business, maintain decision-making authority or ensure that a fair arrangement is made between family members who work in the company and those who do not.
What are the tax implications of gifting shares?
Three areas deserve particular attention: Capital Gains Tax, Inheritance Tax and the availability of business-related tax reliefs.
Capital Gains Tax on gifted shares
Giving shares away can count as a disposal for Capital Gains Tax (CGT), even when you receive no money. For tax purposes, a gift to a family member will generally be treated as taking place at market value.
This means a tax liability could arise based on the difference between the shares’ acquisition cost and their market value at the date of the gift. You could face a tax bill without receiving sale proceeds to pay it.
Gift hold-over relief may be available for certain gifts of business assets or shares in qualifying trading companies. Where the conditions are met and a valid claim is made, the gain can be deferred rather than taxed immediately. The recipient generally takes on the deferred gain, which may become taxable when they later sell the shares.
Relief is not automatic in every case. The nature of the company, the assets it holds and the circumstances of the transfer can all matter. Recent changes to the rules also affect how relief is calculated where a company or group holds non-trading assets. Professional advice is important before assuming that the full gain can be deferred.
Inheritance Tax and lifetime gifts
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