Can I reduce my tax bill by giving shares to my Husband or Wife? Watch our video to learn more.

If you’re the owner of a limited company, you’ll pay tax on any income you personally take from the company. The first £2,000 of dividends each year are tax-free. Dividends are then taxed at 7.5% for a basic rate taxpayer, 32.5% if you’re a high rate taxpayer, and 38.1% if you are an additional rate taxpayer.

So can you reduce your tax bill by giving shares to your partner? Well, the simple answer is “yes”. You can do this……as long as you do it properly.

You’ll save tax, because you can use up their tax-free dividend allowance, and also they can pay tax at the lower rates rather than you take an income at a higher rate.

For example, if you have a company that makes a profit of £100,000, and it is solely owned by one person, if you take the money out in the most tax-efficient manner, the total tax bill is about £31,000.

However, if you split that company 50/50, it reduces the total tax bill to just under £20,000, saving over £11,000 in tax.

Now, as you can imagine, HMRC are not keen on husbands and wives moving income around to best suit their tax affairs. There have been court cases where HMRC have fought this – the most famous one being the Arctic Systems court case.

However, it is perfectly acceptable for your spouse to own some of the shares in your business, as long as they are shares that amount to more than just a “right to receive income” and, in fact, have the right to vote and rights on the winding up of the business.

Therefore, you can give your spouse shares in your company to reduce your tax bill.

Could I be challenged by HMRC?

HMRC could challenge the shareholding if, in any year you decide actually you don’t want to pay the dividends, to both shareholders. Any dividends paid, do have to be paid in proportion to share holdings. If you hold 50% each, the dividends need to pay equally.

Sometimes people have waived a dividend to allow the other shareholder to have all of the dividends. This is where HMRC could challenge you and could be successful as it could be viewed as simply a tax dodge. So it’s best if you don’t do it.

In a nutshell, you can give shares to your spouse as long as those shares have a right not only to dividends, but to votes and to assets. Otherwise, you can give shares to your husband, wife, or any other family member. By doing this, you can cut your tax bill.