Putting shares in trust for children

[Poonicorn]

Not sure if this should be in money or legal.

I own shares in a company that pays out substantial dividends each year. If i were to transfer the shares to a trust for the benefit of my DC would I still have to pay income tax on the dividends based on my own income (higher rate taxpayer) or would it be tax free and based on DCs' personal tax allowances?

Is there any other way I can transfer the shares to my DC so that the dividends doesn't count as my own income?

Ideally, you'd just pay your tax.

To explain further, my income (including dividends) takes me slightly over a bracket that disqualifies my DC for a sports sponsorship award. This means I can't afford for my DC to compete at an elite level.

If I didn't have the income from the dividends my DC would be eligible for the award and would be able to compete.

The amount of dividends is much less than the amount of the award so it is financially beneficial for me to get rid of the dividend income. But it seems that if I give it to my DC it still counts as my income for tax purposes so we still couldn't claim the award.

Take into account that you child will own the shares when they are 18 and can spend it all on new trainers, branded clothes and fast cars

Don’t do it for this reason alone

I'm not trying to avoid tax. I'm trying to reduce my net income. Sorry if that wasn't clear.

Put is in your own pension then

I'm not worried about that. Also some trusts allow the trustees to retain control of the trust even when the beneficiaries are 18.

It would still count as income while I own the shares, whatever I do with the dividend income.

For example, let's say my DC needs £40k to train and compete.

If my net income is £60k we can get a £20k sponsorship award so need to pay £20k. But if my net income is £70k we get nothing and have to pay £40k.

Salary is £60k and dividend income is £10k. How can I remove the dividend income from my net income and instead give it to my DC?

From my research if I were to put the shares in trust for my DC the dividend income still counts as my own net income so we still wouldn't be eligible for the sponsorship award.

Just wondering if I've missed something.

I could stretch to paying £20k a year out of £60k income but not £40k out of £70k income.

Is tax on your salary paid via PAYE or self-assessment?

Yes you can put the shares into trust but you have to make sure the child does not receive any income from the trust until they are 18 - ideally the deed should exclude them until they are 18. If they do receive income from the trust then the trusts income would be taxed on you as settlor. It’s an anti avoidance rule basically.

Also if you gift any asset to a minor child you will be taxed on the income until they turn 18.

The children will not necessarily be entitled to the shares/income at 18, it’s up to the trustees.

Can you not sell the shares?

Whichever way you look at it you are trying to deprive yourself of income to get something cheaper or free which you would otherwise not qualify for ! Do you not think this is a teeny bit dishonest ? Does another child miss out because yours qualifies once you have got rid of this divident into someone else's name?

Well if you can't afford it you can't afford it 🤷🏻‍♀️, stop trying to swizzle the system and accept that you can't have everything you want.

It sounds as if OP's child qualifies in terms of talent to train at an elite level but OP can't afford it because of the rules around means testing. It's the child who is missing out.

Give it to charity?

@tribpot lots of people and children miss out on things that aren't financially feasible not everyone tries to cheat the system

There are different types of trust. A discretionary trust may help you but neither you or your DS could be a named beneficiary or benefit from the income. You need to take legal advice.

Alternatively it may be possible to put the shares into a company so no dividends are paid to you directly, but that could be expensive in other ways (Capital Gains Tax?) - you really need to see an accountant to work through it.

Self-assessment due to the dividends

No it doesn't affect any other child but it means that my DC can't compete as we can't afford £40k a year.

Exactly

Thanks. So the beneficiary would need to be outside of the family?

So as long as my DC is a beneficiary the dividends will be taxed based on my income?

Yes, beneficiary needs to be outside your family. A beneficiary doesn't need to be a named individual - in a discretionary trust it is common to name a 'class' of beneficiaries that could potentially benefit, but no one is actually entitled to the income. I believe you would need to exclude yourself from benefitting for it to work.

The problem with this is that you are effectively giving away your assets to someone you 'trust' (the trustees) to manage for the future benefit of the beneficiaries. You really need to give away the shares - it can't be a sham!

It is possible, with a well worded trust document, for the trustees to add beneficiaries later - eg. on your death. Again, you need legal/accountant's advice!

Thank you @Januarysickandtired