Splitting Income With Your Spouse

20 November 2017

Is it risky for your spouse to have shares in a limited company?

The transfer of shares between married couples are exempt from any capital gains tax as per current HMRC legislation.

If we assume the couple are married and the shares are normal ordinary shares with equal voting rights, then there isn’t a huge risk of HMRC challenging a share split between spouses.

This is due to a tax case called ‘Arctic Systems’ where HMRC tried to use the ‘settlements legislation’ to stop a contractor (who did the vast majority of the work for the company) splitting income with his wife.

HMRC did in fact win the case, however it was overturned on appeal. The House of Lords said that although a 'settlement' did happen, the following also applied:

  • The couple were married and it was a gift from husband to wife
  • The “gift” of shares was not just for a right to income, it was also a right to a % of the limited company including full voting rights.

We are under the opinion that at this current moment in time, a gift to your spouse is common tax planning and is very low risk (although not zero).

It’s also a good idea to ensure that your spouse’s dividend is paid directly into their own personal bank account.

Unmarried couples?

The situation is a lot more tricky if you’re not married. Due to the increased risk and complexity involved in this arrangement we don’t recommend gifting shares to your partner as there could not only be capital gains tax issues, but increased risk of HMRC challenging the arrangement under the 'settlements legislation'.

How do you transfer shares to your spouse

The shares should hold full voting rights which means you need to take into consideration that your spouse will legally own a % of the company as per the shareholding split.

In order to transfer the shares, a Stock Transfer Form and a few other pieces of admin need to be filled out and then Companies House records must be updated to reflect the new shareholding.

Need more information about splitting income with your spouse?

Follow this link to contact the team at Source Accounting to find out more