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 , which is used for gifting shares without consideration.
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.
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