Ask Paul: How can I split shares with my siblings?

Dear Paul,

My two siblings have 30-year-old shares in one company which are meant to be split among the three of us.

We would like to arrange this but are unsure what the best way forward would be.

What would be the pros and cons of splitting the shares three ways (my siblings gifting the thirds to each other and myself) versus selling all of the shares and sharing the proceeds among us?

None of us needs the cash desperately, and all see the value in holding shares for the long term.

However, we understand that the tax implications can be complicated and naturally we want to put ourselves in the best situation. - Sally

You are right, Sally, tax is the big issue here.

Whether these shares are listed or unlisted, a transfer is not complicated.

Either way you can balance things out so you own a third of the shares each. But I have no idea what the value of these shares you have held for 30 years is, nor what they are worth today.

In your situation, I'd have a chat with your tax adviser to work out the 'cost base' of the shares and their current value. This will be easy if the share is listed, less so if it is unlisted, as a value will need to be determined.

Then you will need to look at the capital gains tax (CGT). This will be the difference between the cost base of the share and its value today.

Presumably, the easiest way of getting you all to the same shareholding is if your siblings each transfer a third of their holding to you. But this is likely to generate CGT for your two siblings, which would be added to their taxable income for the year.

But they would get the 50% discount on any capital gain.

How much tax they pay will be determined by their existing taxable income for the year. You would pay no tax as the recipient of shares and would have a higher cost base of today's share value.

None of this is particularly difficult. It may make sense to work out the extra tax generated from the transfer and share that cost equally and consider the benefit you would get from a higher cost base.

I would get on with this transfer. As it is mainly a taxation question, have a discussion with your tax adviser and come up with a 'fair to all' plan.

Get stories like this in our newsletters.