Transferring Shares to a Spouse: Advice for SME Owners
Author: Russell SmithDecember 5, 2017
Want to transfer company shares to your spouse or common-law partner? Our chartered accountants explain how to do it.
As you’re searching for advice on how to transfer shares to a spouse, you’ve probably heard something about the potentially substantial benefits. Our accounting experts are specialists in small business finances and have been supporting the transference of shares between directors and their spouses for many years.
Looking for a little more detail on how and why you should transfer shares to a spouse? Keep reading!
Experts Talk Tax Saving Benefits of Transferring Shares
Why transfer your capital assets to a partner when their value will be the same? The shares do not increase in worth simply by being owned by somebody else.
The number of shares you have dictates the number of dividends you can take from a company. If you owned 100% of the shares, you could take 100% of the dividends from the business.
What if this amounted to £80,000? You will be taxed on this full £80,000, which places you in the higher tax band of 32.5% deductions after the first £33,500 at the lower rate. However, if this number were to be split into two lots of £40,000 across you and your spouse, the majority of tax paid would be on the 7.5% lower band, with only a small proportion in the upper echelon.
Let’s create an example calculation.
In our example, to reduce tax, you are taking £11,500 salary to avoid paying income tax and making the rest of your income up in dividends to the tune of £80,000. You’ll be paying £17,500 in dividend taxes.
Now, let’s split this income between yourself and your partner. If you were to continue taking £11,500 as income and then £40,000, you’d pay £4,250 in dividends tax. If they were to do exactly the same, you’d be paying a total of £8,500 on your dividends. That’s a colossal tax saving of £9,000 a year.
What you have to be careful of, though, is your partner’s income.
If your partner has no income, they will actually only be taxed just over £1,750 on their £40,000 worth of dividends, which makes the savings of splitting shares utterly stratospheric.
However, if they are earners, they’ll be liable to pay more tax on their dividends.
For example, a spouse earning the national average of £27,000 would pay over £8,000 in dividends tax. It’s still a saving, but you may be able to find different percentages of dividend to income tax that help save you more. It’s all about weighing up the numbers and finding the best match between income tax, dividend tax and how your finances are split.
Need help working out the optimum savings on dividend tax that you can make by transferring shares to a spouse? Our accounting experts can help! Contact us today and we’ll help you discover the best way to save.
The Definition of Spouse
So, you want to reap the benefits for your business of share transfers, but who qualifies as a spouse?
Technically, you can give shares to anyone. However, they will be hit with Capital Gains Tax if they do not fall under the band of a suitable partner or charity. A suitable partner is regarded as a husband or wife (applying to both same-sex and male-female partnerships), or civil partner.
Notice that common-law partnerships are not included within this bracket. Those unwed, no matter the length of the relationship or living arrangement, do not enjoy the same tax benefits as a married couple or those in a civil partnership.
Because of this, be cautious when transferring shares and other assets, as you could be stung with a high fee.
How to Transfer Shares to Your Spouse
Transference of shares is a fairly simple process in theory.
You must read over your shareholder agreements and articles of association to understand your obligations. This is especially important if you are not the only shareholder. In order to transfer shares, you usually have to consult other partners/directors in the business, which will result in a vote.
You must then get the correct form from Company House, have both parties complete and sign the documents and submit them to the government. The process is outlined clearly on the .gov website. Following successful registration of your new shareholder spouse, they are able to extract dividends from the company.
Looking for assistance with the process of transferring shares to a spouse? This is a task our accountants from Leeds have carried out on countless occasions. Get in touch and we’ll support your tax-saving asset transfer.
Russell Smith is an award-winning accountant and founder of RS Accountancy. With over a decade of experience running his company, he has worked with countless small businesses just like yours, helping them grow profits and manage their finances. Russell is also a prolific financial writer, having contributed to such publications as The Guardian, The Telegraph and The Daily Mail.