Should you make your spouse a shareholder?
One of the most frequently asked tax planning questions we get from owner-directors of limited companies is whether or not to make their spouse a shareholder. Done right it can be one of the simplest, yet most effective, ways to lower your household tax bills and improve your take-home pay.
Why should you consider it?
Making use of allowances – If your spouse has little or no other income, their personal allowance and basic rate band can be utilised to receive dividends at the lowest tax rates.
Household savings – Dividend income can be split more evenly across your household. This can save tax if your income is uneven, where one person is paying a disproportionate amount of tax at higher rate.
Flexibility – A 50/50 split of shares isn’t the only option. You can structure shares to create a tax profile that is appropriate to your household’s income.
Things to be aware of
Genuine shareholder – Your spouse should own shares on the same terms as any other shareholder. This should be supported by appropriate legal documentation.
Tax band limits – If your spouse’s dividend income pushes them into the higher-rate tax threshold, the tax saving tapers off. This is most effective if they remain in the basic rate band.
Professional advice – As with all tax planning, the set-up is important. If it is not done correctly, it could draw the interest of HMRC and cause unnecessary stress.
Our view
For many contractors and small business owners, the addition of a spouse on the share register can produce a meaningful uplift in tax efficiency. This needs to be a genuine arrangement, supported by appropriate legal documentation, and is most effective when it is suitable for your household’s circumstances.
