Gifting Process
To document the gift of shares and minimise tax risks, it’s important to follow a structured approach to ensure compliance with HMRC and reduce the likelihood of challenges. Below is a process for structuring the gift of shares and related documentation.
Steps to Document the Share Gift
A. Board Resolution (for private limited company)
Before transferring the shares, the company’s board of directors formally approves the transfer.
Document Content:
• State the reason for the gift (e.g., retirement, succession planning).
• Acknowledge that the transfer is a gift with no consideration.
• Confirm that the recipient is approved as a shareholder under the Articles of Association.
• Reference the shareholding details (number of shares, class of shares, current value).
• Directors’ signatures and date.B. Share Transfer Form (Form J30 for UK companies )
The standard UK form for transferring shares is Form J30
Key Fields to Complete:
• Company name and registration number.
• Number and class of shares being transferred.
• Full name and address of donor (retiring director).
• Full name and address of donee (remaining shareholder).
• Value of the shares (market value to be declared for tax purposes).
• Signatures of both parties.
• Submit to HMRC if the market value exceeds £1,000 for stamp duty review.C. Deed of Gift
A formal deed of gift provides a legally binding declaration that the transfer is a gift and prevents potential disputes.
Key Clauses to Include:
• Identification of both parties (donor and donee).
• A declaration that the shares are being transferred without consideration.
• Confirmation of donor’s intention to transfer ownership voluntarily.
• Acceptance by the donee of the gift.
• A statement acknowledging that any tax liabilities (CGT) will be the responsibility of the donor.
• Signatures, witness statements, and date.D. Updated Share Register
After the transfer, update the company’s Register of Members to reflect the new ownership.
Steps:
1. Remove the retiring directors from the register.
2. Add the new shareholder details (remaining shareholder).
3. Issue a new share certificate.E. Inform Companies House (if applicable)
Depending on the shareholding structure, an update may be required at Companies House.
• If the gift results in a significant ownership change (over 25% of shares or voting rights), submit a PSC (Persons with Significant Control) notification (Form PSC01).
• If the directors resign following the transfer, file a TM01 (Termination of Directorship) form.F. Written Agreement on Termination Payments
If the directors are receiving termination payments (e.g., £6,500 each), document the rationale for the payments separately. This can be structured as an ex-gratia payment for:
• Loss of office – acknowledging their long-standing contribution.
• Consultancy transition – if they provide short-term support post-retirement.
• Goodwill for handover – recognising their role in the company’s development.Tax Considerations and Planning
A. Capital Gains Tax (CGT)
• The retiring directors will need to declare the market value of the shares gifted and may be liable for CGT.
• Ensure they consider Business Asset Disposal Relief (BADR) if applicable.
• If eligible, they can use Holdover Relief (if shares qualify for BPR) to defer CGT.B. Inheritance Tax (IHT)
• The gift will be considered a Potentially Exempt Transfer (PET) and will fall outside the donor’s estate after 7 years, but will remain at risk if the donor dies within this period.C. Stamp Duty
• If the transfer is a genuine gift (i.e., no consideration), no stamp duty is payable.
• If any amount of consideration is present, stamp duty may apply at 0.5%.Suggested Wording for Loss of Office Rationale
If termination payments are being made to the retiring directors, the rationale could include:
1. Acknowledgment of Service:
“In recognition of the dedicated service provided over the past 50 years and their invaluable contributions to the business, the directors shall receive a termination payment reflecting their tenure and achievements.”
2. Succession Planning:
“As part of the succession planning strategy to ensure a smooth transition of leadership and knowledge transfer, a payment is made in lieu of continued engagement.”
3. Market-Based Justification:
“Given the market standards for directors of similar standing and responsibilities, the payment represents fair recognition of their roles and responsibilities over the years.”Summary Checklist for Documentation
| Task | Document Required | Action Required |
|---|---|---|
| Board approval of gift | Board Resolution | Sign and file internally |
| Formal transfer | Form J30 | Submit to HMRC (if applicable) |
| Legal confirmation | Deed of Gift | Sign and witness |
| Share register update | Share Register | Record new shareholder |
| Companies House update | PSC01 / TM01 | File if applicable |
| Payment documentation | Termination Agreement | Issue payment |
See my next doc for a template of all of these documents.