Tax treatment of dividends on joint acct

piking2k

Hello.

I own some shares on which I expect to receive dividends, and am considering transfering them to my wife's name to save tax (me - higher rate tax; wife - lower rate tax).

Would I need to transfer the shares into my wife's sole name to get the full benefit of her tax allowances? Could I move the shares into a joint sharedealing account (which I would prefer), or would the tax man consider that in a joint account 50% of the holding should be taxed at my rate and 50% the wife's?

Thanks for your help!

dzug1

The taxman's starting point would be 50:50

I think you'd be hard put to argue anything else. If anything it would swing towards to being 100% you as you provided cash to buy the shares.

chrismac1

The best way to approach this - for which I will get some criticism later in this thread and be accused of perpetrating an international tax fraud - is to transfer the shareholdings fully into her name, but get her to let you access and change her dealing password. Then she is the 100% owner of the shares but - presuming here that you are the one who is really interested in share dealing - she can't do anything silly with them as she only has the password which permits her to view the holding and not sell or otherwise move it.

chrismac1

There are other ways around this problem too, depending on your approach to life. If these are quoted shares in the FTSE 100 or 250, you can avoid all taxes on them by selling the shares and buying a spread bet equal to the same value.

Suppose you own 10,000 shares in Vodafone which is £17,000 or so in value. You sell the shares and buy a Vod spread bet - ideally for March 2011 expiry - at £100 per point. Spread bets are entirely free of tax but have other issues:

1. You have to keep rolling the contract every 3 months to keep the position.
2. There are hidden charges built in to the prices being quoted and the rolling adjustments.

chrismac1

You could also transfer the shares into a tax-free ISA if your 10,200 allowance for this tax year is not fully used up. Or you could transfer them into a low-cost SIPP, but then can't take the proceeds until you retire. There are other options too.

piking2k

Thanks for the replies. The spreadbetting approach seems to make good sense, but the shares in question were awarded as part of an employee share scheme and can't be sold off without incurring CGT. Into the wife's sole name it is then!

jimmo

The trouble with that is that is that you have given no indication of the value of the shares or the amounts of dividends.
In an extreme example you could commit yourself to saving a couple of pounds income tax each year on the dividends by transferring the entire holding to your wife but, if the shares are sold you risk paying the best part of £2,000 Capital Gains Tax above what may be necessary with better planning.

piking2k

Hi Jimmo.

Approx £200k current value, the majority of which would represent a capital gain if sold. Dividends likely to be between 1 and 2% of that each year. As you can see, the tax I'd save on the dividends by transferring the shares to the mrs won't pay for a tropical island - but I'd rather have it my back pocket than the government's.

jimmo

I am just guessing but I imagine that that you having shares valued at £200,000 is a lot more than anyone imagined.
Whilst I am no tax planner I think you have a fundamental decision to make. Do you intend to retain the shares for the long term receiving the dividends or do you want the cash?
If you are intending to retain the shares long term it could be a sound proposition to gift the whole shareholding to your wife.
If you want the cash you could gift half of your shareholding to your wife and each of you could sell sufficient shares each year to ensure that your individual capital gains are below the annual exempt amount of £10,100. In very round terms it could take 10 years for you to sell the whole shareholding tax free.
I can also see some possibilities of gifting a higher proportion of the shares to your wife so that your wife incurs 18% tax on her Capital Gains over £10,100 each year as opposed to your 28%.
In principle there is nothing wrong with people transferring assets to their spouse but tax case law has also established the principle that transactions whose sole purpose is to save tax should be ignored.
In my days at HMRC we would normally accept a single transfer of assets between spouses but we would bite and bite hard if there were a series of transactions between spouses.
That is your problem. What do you want to achieve? cash in your pocket or a minimal tax bill?

chrismac1

Jimmo - you are right, £20k to £30k would have been my guess! This in fact opens up a whole new theme in this thread - RISK. Are too many of your eggs in one basket?

Let me take you back to 2007. A friend of mine was advising me strongly to buy RBS shares at just under £6. He was a regional manager for the business and heavily invested in the shares via options and bonues. He'd met Fred the Shred often and although not a very nice guy thought he was running the UK operations really well. And maybe he was. But in the rest of the business everything was going pear-shaped.

I exited the shares at 450p, bought back in to a lesser degree at 150p and out again at 50p. Not pretty, but my friend has been burnt much worse than this. Despite my strong warnings to him to sell at 450p and a range of prices lower than this, he's still got them at current value 38 pence. And his job's been under constant threat over these last 3 years, many colleagues have lost their jobs as well as their share values.

So unless you are the Fred the Shred (i.e. at the very top of the company) in this case, or have other shares worth at least £1m, £200k is probably way too much exposure in addition to the exposure you already have to your earned income which is also with this company.