Income Shifting - What is allowed

Jonah01

Hi,

I have researched this topic and have found quite different opinions on the subject and have also read HMRC are clamping down on various different income shifting methods.

Could someone clarify if this is allowed.

I am a director in a small limited company and own a percentage of shares in the company. (ordinary shares).

The dividends I receive will be subject to 25% tax as I am in the 40% bracket.

Would I be able to transfer these shares to my wife who only pays 20% tax thus we wouldn't have any tax to pay on the dividends.

A small extract from a recent article I found seemed to suggest this is ok.

"Transfer of shares option

Assuming your spouse pays tax at a lower rate than you, then giving them shares in your company so you can pay them dividends is usually the most tax-efficient route to save tax and NI. The good news is that earlier this year HMRC confirmed that, as far as it was concerned, giving assets to your spouse to reduce your income or capital gains tax bill wasn’t an abuse of the tax rules."

Opinions would be welcome as I don't want to break any rules.

Cheers
Paul

Davide123

Yep.
Gift the shares to her.
May be better to restructure share capital to a and b shares, (you a, her b) so you can vote different level of dividends, which may be easier to utilise both basic rate bands.
Discuss with your accountant ?

cotswoldaccountant

Yes. Under current tax laws, it is perfectly allowable to transfer your shares to your wife. You will need to complete a Stock Transfer Form to transfer the shareholding.

As with the previous poster's advice, I suggest you speak to your accountant before going ahead with any share transfer to your wife.

chrismac1

I would be setting up voting A Ordinary shares for her. As per Davide's post this gives more flexibility. Google "Jones case Arctic systems" for the key tax case on this front.

There are various features of the Jones' setup - and various ones they did not have but which the judge mentioned. For all my clients where there is an income shifting tax risk, we have ALL of the features in place, a robust set of defences.

The key here is for your wife to have an input and involvement in the company, and to be seen to have such an input. The whole thrust of the HMRC challenge in Jones was that Mrs. Jones' had a mere paper involvement, hence the dividends were a settlement taxable on Mr. Jones.

Get your ducks in a line and this line of argument falls apart.

Jonah01

Thanks for your help. I will discuss this with our accountant.