Can Children Under 18 Own Shares in a Family Investment Company? The £100 Rule

Quick answer: Yes, a child under 18 can own shares in a Family Investment Company (FIC). The catch is tax. If a parent gives an unmarried child under 18 the shares, or the money to buy them, and the child's dividends from the parent's gifts pass £100 in a tax year, the whole amount is taxed on the parent. Families usually plan around this with grandparent gifts, a trust, or by waiting until the child is 18.

Why families want children as shareholders

In most Family Investment Companies the parents keep voting shares and control. The children, or trusts for them, hold growth shares that capture the future increase in value. Putting children in early means more of that growth builds up outside the parents' estate.

That works well for adult children. For younger children it needs care, because tax law has a specific rule to stop parents moving income to their children's names. The general structure is covered in our article on how a Family Investment Company is set up, funded and run.

The £100 rule

The rule applies to a parent who makes a "settlement" in favour of their own child. A gift of shares, or of the money used to subscribe for them, counts as a settlement. Income from it that is paid to or for the benefit of an unmarried child under 18 is treated as the parent's income if it is more than £100 in a tax year.

Three points make it harsher than it sounds.

1. It is a cliff-edge, not an allowance. If the child's income from the parent's gifts is £100 or less, the child is taxed on it. Once it passes £100, the whole amount is taxed on the parent, not just the excess.
2. It is per parent. The limit is applied to each parent's gifts separately, so two parents can each give.
3. It covers dividends. Dividends from a FIC on shares a parent has funded fall within it, as well as other income.

The rule applies only while the child is under 18 and unmarried (and not in a civil partnership). It stops for tax years after the child turns 18, and from then on the dividends are the child's own, using their own allowances.

Example: A parent funds growth shares for their 14-year-old daughter, and the FIC pays her dividends of £2,000 in the year. Because the shares came from the parent and the income is over £100, the full £2,000 is taxed on the parent. If the parent is a higher-rate taxpayer, dividend tax at 35.75% on £2,000 (assuming their dividend allowance is already used) is £715. The dividend gave the daughter no tax advantage and left the parent with an unexpected bill. Figures are hypothetical.

What the rule does not catch

The rule is aimed at gifts from a parent. Gifts from others are generally outside it, and families use three main routes.

• Gifts from grandparents. If a grandparent genuinely funds the child's shares from their own money, the £100 rule does not usually apply. HMRC looks at the whole arrangement, so the money must be the grandparent's and not a parent's money passed through. Keep clear records.
• Waiting until 18. The simplest solution is to give shares at 18, when the child uses their own personal allowance and £500 dividend allowance. This means the child can take control of their shares at 18, so the articles and a shareholders' agreement matter.
• Not paying dividends to the child. The FIC can build value in the child's growth shares without paying them a dividend. Dividends only become payable when you decide to pay them, subject to company law and the share rights. This keeps the child's share in the growth, which is the IHT point, while avoiding taxable income.

Using dividend waivers to control who receives what is risky, because HMRC can treat them as a settlement. A separate share class with its own rights is a sounder basis. Our article on five mistakes to avoid when setting up a Family Investment Company covers this.

Using a trust for a young child

A trust can hold shares for a child until they are old enough. Typical reasons are control, protection from a future divorce, and the child not getting access at 18.

A trust does not automatically escape the £100 rule. Where a parent is the settlor and income is paid to or for their minor child, the parent can still be taxed. A trust also brings its own rules: the 20% entry charge on gifts into a discretionary trust above the nil-rate band, ten-yearly charges of up to 6%, and registration with HMRC's Trust Registration Service.

Some families use a mix. Grandparents fund a trust that holds growth shares, and the trust pays out only when the child is an adult. Our article on trusts versus Family Investment Companies compares the two tools.

Practical points for minors

• Who holds the shares. A child cannot give a full legal discharge for money, so shares for a young child are often held by an adult on a bare trust, which means the child is the beneficial owner. The paperwork needs to match the intention. A solicitor should advise.
• Capital gains tax on the gift. Giving shares to your child is a disposal at market value for CGT, even though no cash changes hands. CGT is 18% or 24% above the £3,000 exempt amount. Holdover relief is not normally available for shares in an investment company, so growth shares are best issued at the start, when they are worth little.
• Inheritance tax. A gift of shares to a child is usually a potentially exempt transfer. There is no tax if you live seven years. A gift into a discretionary trust is a chargeable lifetime transfer.
• Keeping a benefit. If you give shares but keep a benefit from them, they stay in your estate. Control through voting shares is not itself a benefit, but a right to take the child's dividends or buy the shares back could be.

When it is not worth the complexity

If the FIC is small, the children are very young and the family wants to spend the income, the child's shares add complexity and little benefit. Better to start with a simple structure, where parents and a trust hold the shares, and add children once they are adults. Our Family Investment Company service page explains how we decide.

Talk to us about Family Investment Company

• A FIC is one tool, not a plan: it works best alongside gifts, trusts and a will
• It mainly caps your share of future growth rather than removing existing wealth from your estate
• A FIC that holds investments pays corporation tax at 25%, but most dividends it receives are exempt

See how we help or book a free 20-minute call.

FAQs

What is the £100 rule for children's dividends?

If a parent gives shares (or the money for them) to their unmarried child under 18, and the income from those gifts is more than £100 in a tax year, the whole amount is taxed on the parent. If it is £100 or less, the child is taxed on it. The rule stops when the child turns 18.

Can grandparents give a grandchild FIC shares?

Yes. Gifts from grandparents are generally outside the £100 rule, provided the money is genuinely theirs and not a parent's passed through them. The gift is still a disposal for the grandparent's CGT and a potentially exempt transfer for inheritance tax. Keep a clear record.

Can a child under 18 be a director of a FIC?

A child cannot be a director before 16. Most families keep the board to parents until children are adults. Children can still own shares without a say in how the company is run, so control stays with the parents.

Does putting shares in a trust avoid the £100 rule?

Not automatically. Where a parent is the settlor and income is paid to or for their minor child, the parent can still be taxed. A trust helps with control and protection, but it adds its own tax charges and filing duties. We always check the trust and the rule together.

Do my children pay tax on FIC dividends once they are 18?

Yes, on their own account. An adult child uses their personal allowance, then a £500 dividend allowance, and then pays 10.75%, 35.75% or 39.35% depending on their income. That makes the FIC an efficient way to direct income to adult children with little other income.

Sources

• Income of a settlor's minor children (ITTOIA 2005 section 629): https://www.legislation.gov.uk/ukpga/2005/5/section/629
• Dividend tax and allowance: https://www.gov.uk/tax-on-dividends
• Income Tax rates and allowances: https://www.gov.uk/income-tax-rates
• Capital gains tax rates: https://www.gov.uk/capital-gains-tax/rates
• Inheritance tax gifts and the seven-year rule: https://www.gov.uk/inheritance-tax/gifts
• Trusts and inheritance tax: https://www.gov.uk/guidance/trusts-and-inheritance-tax
• Register a trust (Trust Registration Service): https://www.gov.uk/guidance/register-a-trust-as-a-trustee
• Trusts and capital gains tax: https://www.gov.uk/trusts-taxes/trusts-and-capital-gains-tax

Next step

If you would like your children to share in the growth, we will design the share classes so the rules work for you rather than against you, and tell you if waiting is better. We offer a free 20-minute call to start. Book a call.