Best Share Split for Spouses #AskAMS

What to consider when you want to split Company shares with your spouse - including genuine ownership of the business and tax planning.

Genuine ownership

Who genuinely owns the business, founded it and acquired it? Who works in it and earns the money?  If the person who formed, and runs, the company isn’t the majority shareholder, this could be storing up trouble – particularly because, in the event of a fall-out between a couple, the main worker could find themselves not in control of their own Company.

Tax planning

Splitting shares between spouses can be advantageous – particularly when their respective taxable income is unequal.  It is common for a shareholder to transfer shares to their spouse if it minimises their overall tax bill.  Transferring shares to a sp ouse is straightforward and there are no Capital Gains Tax implications.

Relationship to work done by each spouse

In 2007, there was a court case concerning a law called s.660a, in which the House of Lords ruled that a shareholder can give shares to their spouse without there being any tax issue - so long as the share transfer was an outright gift.  No legislation has since altered this position.

However, I do sometimes hear concerns from people who believe it might be unsafe to gift more than about 30% of the share capital to a non-working spouse.  This is not the case.

Alphabet shares

This term describes the situation where there are different share classes with different rights – e.g. perhaps A shares with voting rights and B shares etc. with no voting rights but a right to dividends.  The idea is that dividends are paid out in a tax efficient way to the B/C/D shareholders without the main director/shareholder having to give up control – so, it could be said, there is no real “outright gift”.  It is this sort of set-up where Companies are potentially at risk of an HMRC enquiry – and I advise being very cautious around setting up Alphabet share structures.