Tax implications for stock transfer?

[Gogetter1]

Hi.

Does anyone know what tax implications there may be to transfer stock tracker funds to my now adult twins (18 years old now)?

I set the M&G tracker funds up just after the twins were born and have invested every month ever since in each of them.

Each of the M&G accounts have designations against them, one for each twin.

I understand that I would need to complete a stock transfer form if I am to give them control of the funds.

If I do this, will tax need to be paid?

Thanks in advance.

Moderator Message:
Moved from DAK to Taxes (leaving a link). May I also welcome you to The Lemon Fool Gogetter1 - Chris

[PinkDalek]

Hello Gogetter1 and congratulations on your first post at the two year old Fool.

Hi.

Does anyone know what tax implications there may be to transfer stock tracker funds to my now adult twins (18 years old now)?

I set the M&G tracker funds up just after the twins were born and have invested every month ever since in each of them.

Each of the M&G accounts have designations against them, one for each twin.

I understand that I would need to complete a stock transfer form if I am to give them control of the funds.

If I do this, will tax need to be paid?

Thanks in advance.

It sounds like a bare trust and/or a designated account.

I'd have a read of this https://www.taxinsider.co.uk/763-The_Ba ... rusts.html, including the part commencing Parent Bare Trust, to ensure you've been dealing with any income arising correctly.

That article also includes For inheritance tax (IHT) and capital gains tax (CGT) the beneficiary (ie not the trustees) is treated as the beneficial owner of the property held in the bare trust such that your now adult twins should always have been treated as the beneficial owners.

What you are now doing is to transfer the legal ownership. Such a transfer shouldn't give rise to any CGT.

For further background reading on bare trusts as against designated accounts there's a thread back here:

viewtopic.php?p=67767#p67767

It ends with this

I have recently spoken to HMRC on this subject and was told they are happy to regard a designated account in a similar way to a bare trust providing the designated is the true beneficiary. But the £100 rule for savings income still applies for a parent.

[DrBunsenHoneydew]

I think the problem here is that M&G are regarding this as a designated account that has never formally been accepted as also being a proper bare trust. In a DA the holdings do not automatically transfer to the child at age 18, whereas in a BT they do.

[helfordpirate]

The existence of a trust is a matter of the actual facts at hand, including implied trusts by operation of law where there is a presumed intention of creating a trust.

So firstly, is this an express trust? Is there any written expression of your intention as the settlor to gift the shares to your children - this doesn't need to be a form from M&G or a broker, it could be a letter to your children expressing your intention at the time, or a note in your own files that you have gifted sums to your children and intend to make gifts in the future. What matters is that there was clear intention to make an irrevocable gift of the shares with your children as the beneficiaries. In the absence of a written expression of trust, a trust can be made 'orally'. So again have you clearly stated to your children that you have gifted them the shares? is there any other evidence of your purpose with these assets? A designation on the account I would not think is sufficient on its own, as it simply "earmarks" the funds and is no more than evidence of a future intention to make a gift.

You need evidence that the purchases of the shares were meant as irrevocable gifts to the children and then the fact that you have retained legal title creates the bare trust.

If there is no evidence of the gift and you in fact had only simply saved money for the children with the intention of giving it to them in the future, then no trust has been created.

To answer your question, if a bare trust was created, then the transfer of the assets to your children is not a chargeable event as they have always been the absolute beneficial owner of the shares and your children hold the shares with whatever base cost they were acquired at; if no trust was created, then the transfer is a gift and CGT is chargeable to you on any gains on the shares using the market value at the time you transfer them and your children then hold the shares with a base cost of the current market value.

[scrumpyjack]

Yes I can't see it matters what M&G think. It either is a bare trust or it is not. M&G's opinion has no relevance.
I would have thought on the facts you have presented, these are bare trusts.

My family have used bare trusts for decades for children and grandchildren. None of the children has ever insisted on getting hold of the assets at age 18 and no one has blown the money on rash expenditure.

One point I am not sure of is whether the trustee of the bare trust actually has a legal duty to notify the 18 year old of it's existence. Obviously they would have to if there were income and/or gains for the 18 yr old to put on their tax return. But otherwise one could leave it a few years until they were felt to be level headed enough to handle it? An academic question as I did inform my children though it was then a number of years before I actually got round to transferring the shares to their names.

[helfordpirate]

One point I am not sure of is whether the trustee of the bare trust actually has a legal duty to notify the 18 year old of it's existence.

In a nutshell - yes!
The trustees have a fiduciary duty to the beneficiary. The beneficiary has a right in law to enforce the trust and to hold the trustees to account. They are being denied this right if the existence of the trust is hidden from them. This is even more the case in a bare trust where the beneficiary has the right to legal title of the assets on reaching 18.
Of course in a close family one would hope this would never be an issue.....

[Chrysalis]

I think, yes, the trustee has a duty to inform the beneficiary at 18. Otherwise the beneficiary can't fill in their tax form appropriately...
But I wonder if the broker also then has a duty to deal with the beneficiary? Of course with online brokers it is easy enough to continue to operate an account whether or not there is a formal third party mandate, but I would have thought the broker probably should start to deal directly with the beneficiary?

[scrumpyjack]

I think, yes, the trustee has a duty to inform the beneficiary at 18. Otherwise the beneficiary can't fill in their tax form appropriately...
But I wonder if the broker also then has a duty to deal with the beneficiary? Of course with online brokers it is easy enough to continue to operate an account whether or not there is a formal third party mandate, but I would have thought the broker probably should start to deal directly with the beneficiary?

In no instance has the broker or company registrar in any bare trust I have dealt with ever initiated contact with the beneficiary. They probably don't know who the beneficiary is in the case of the older BTs as it is simply an account in the name of the bare trustee with 'a/c XXX' (initials of beneficiary). With one security in one of my bare trusts the certificate has still not been re-registered in the beneficial owners name 15 years later as it is a small holding and we couldn't be bothered. All was fully disclosed to the beneficiaries before they became 18 and obviously any relevant figures for their tax returns provided since then.

With the latest ones set up for my grandchildren last year, Hargreaves Lansdown did ask for things like birth certificates, which never used to be requested, so perhaps they are becoming keener on 'knowing their client'!

[Chrysalis]

@scrumpyjack I guess your grandchildren are a long way off 18? I’d be interested to know if Hargreaves Lansdown want to deal with them directly then.
Personally I can’t see why it would be any different to the handover of a JISA at 18.

[scrumpyjack]

A JISA is a specific legal tax sheltered vehicle which can only be operated by an authorised broker.

A bare trust is simply an arrangement whereby someone over 18 holds assets on behalf of someone under 18. It could be land, cash, anything. It does not need to involve a stockbroker. It does not need any specific document to create it. It arises simply because an adult holds something on behalf of a minor. In the case of shares, they cannot be registered in the name of a minor. I could hold them in certificated form, in which case no broker is involved at all!

[Bouleversee]

My children were given certificated shares in bare trusts with my husband as trustee and so far as I can recall they were never transferred until they wanted cash for flat purchase in their twenties. Whether they were transferred to a broker to be sold or whether we bought them off them at market value and who signed the transfer forms refuses to emerge from my memory. I have given shares to my grandchildren with their parents as trustees so I would be interested to know whether it is the child, once over l8, or the trustee who has to sign the transfer form. Since they are legally entitled to them at l8, logically one would imagine it is the child/beneficiary who signs, but it might be the trustee. I should not have thought it was obligatory to transfer them into the child's name until they are to be disposed of unless the trustee dies, but I am open to correction. I expect the company registrars would know the answer.

It sounds like a painless way of investing for children. I must have a look at the fund to see what it did over an 18 yr period. Although we did make use of their annual cgt allowances as we went along, we found that it would have created a tax demand if all had been sold when they needed the money for the deposit etc., so we retained some till the next year and loaned them the value of those till they were sold.