Noel Coonan (Tipperary North, Fine Gael)
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Question 63: To ask the Minister for Finance if a child under 18 years old can own shares in a company, bearing in mind the rule on acceptance of gifts by children, which has a €3,000 limit each year; the position annually for income obtained in the form of dividends paid by a company to a child; and if he will make a statement on the matter. [19179/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There is no prohibition on a minor holding shares in a company.

I am advised by the Revenue Commissioners that where a child under 18 years of age receives dividends flowing from shares owned by him, the following income tax implications arise.

If the child received the shares under a settlement, then the dividends are taxable in the hands of the person who made the settlement. Settlement in this context includes any disposition, trust, agreement or arrangement and any transfer of money or other property or of any right to money or other property. For example, if an individual (not necessarily the child's parents) funds the purchase of shares on behalf of a minor, or transfers shares to a minor, then the dividends flowing from such shares are taxable in the hands of the individual who made the settlement and not taxable in the hands of the child.

Even where the transfer of shares under the settlement is irrevocable and the dividends are to be accumulated for the benefit of a minor (for example, the property is put into an irrevocable trust and the person who transferred the property to the trust is not a beneficiary of the trust), any payment by the trustees of any of the income accumulated in that settlement to or for the benefit of a child is treated for tax purposes as income of the person who made the settlement and taxed accordingly.

The purpose of the relevant tax legislation is to prevent individuals purporting to transfer sources of income to children to obtain the benefit of personal tax credits and reliefs when, in reality, the person transferring the source of income retains ultimate control of the source and of the income.

As to the capital acquisitions tax (CAT) implications, a child is entitled to a tax-free threshold of

€521,208 in respect of gifts and inheritances from her/his parents;

€52,121 in respect of gifts and inheritances from an aunt, uncle, grandparent or sibling;

€26,060 in any other case.

CAT only applies where the benefits are in excess of the relevant tax-free threshold and any excess over the threshold is taxed at a rate of 20%. Also, where gifts are received, the first €3,000 received annually by a person from each individual donor is ignored for CAT purposes and does not reduce the tax-free threshold figure.

Finally, in the case of any transfer of shares, a liability to stamp duty arises at the rate of 1% on the market value of the shares.