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Can I transfer shares to my spouse to reduce our tax bill?

Our reader is looking to reduce the tax paid on private company dividends
Can I transfer shares to my spouse to reduce our tax bill?

Q: I own shares in a private company that I have held for 15 years. They sit outside any wrapper. Dividend income from the shares is somewhat erratic, but can amount to about £10,000 in a tax year and is on an upward trajectory. As a higher-rate taxpayer, would I be able to transfer my shares to my wife who is a basic-rate taxpayer in order to reduce our joint tax bill? Is there an alternative course of action I could take to reduce tax paid on the dividend income and any capital gain I may ultimately make. 

Alan Richmond

Frank Nash at Blick Rothenberg replies: You should tread carefully before transferring any shares in a private company. Unlike traded shares on the stock market, you will be regulated by the private company’s Articles and any Shareholders’ Agreement. These regulate how shares may be disposed of. They may even include a clause requiring you to offer your shares to other shareholders on a first refusal basis before any other transfer. Speak to the company secretary or management first and let them know what you propose to do. They will help you. If there are restrictions these can often be overcome by getting members to agree to the transfer.

For tax purposes, transfers of shares between spouses are generally tax-free. Your wife will be taxable on the dividend income once she beneficially owns the shares. If you wish, the shares could be transferred into joint names and you could make a formal election to HMRC (using Form 17) to be taxed in proportions other than 50:50. The dividends would then be taxed in the proportions you elect that could be 10 per cent/90 per cent in favour of your wife, for example. The advantage of this is that by being joint owners you will both be entitled to receive company information, accounts and to vote at members’ annual general meetings.

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