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How to provide dividend income for spouses …

Working with business owners as a business coach means that I get involved in all aspects of the business, albeit that the core areas that I approach are planning, people, processes and positioning …

Transferring shares to your spouse can have tax benefits, but it needs to be done right!

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It never ceases to surprise me how little attention is given to the financial considerations within the business and perhaps more importantly, if that is a family owned business, how much importance is given to the family finances.

So many business owners fail to keep a track on their profit and loss and rarely focus on a forecast. It is so easy today with all the latest software and with digital taxation just around the corner.

Then there is the consideration of the family finances for the owner’s future. How best to invest for retirement, what tax saving can be made and how to deal with any existing or potential taxation issues.

Ordinarily, you may think that these are the sort of questions you should discuss with your accountant, however, the whole issue of personal, business and property taxation is a minefield and, in my view, you should always consult a tax consultant who is an expert in the field.

Working with my trusted partners I would always recommend that you at the very least have a conversation with Helen Beaumont of Essendon Tax Consultancy. Helen is a highly experienced, qualified chartered tax advisor

Here is an exert from her blog where she talks about ‘How to provide dividend income for spouses, ensure the shares are transferred or issued to them in a robust manner that avoids any challenge from HMRC’.

I am often asked by owner-managed companies, whether it makes sense to have some of the shares owned by their spouse. For tax purposes, the answer is mostly yes, but there are some non-tax reasons why it may not be a good idea.

Under previous rules (pre 6 April 2016), owner-managers were able to pay ‘tax-free’ dividends to their spouses (or civil partner) of around £35,000 (if we assume they had no other taxable income).

“Because if the spouse did not work in the company, it was not possible to justify any salary!”

However, since 2016/17, this has changed with the abolition of the 10% dividend tax credit and the introduction of a 7.5% (basic rate) charge on dividend income. However, this does not mean that spousal dividend planning is dead.

There is a potential for HMRC to challenge any dividends paid to your spouse and this was highlighted in the Arctic Systems case where HMRC argued that it was tax avoidance by passing dividends to the spouse when the owner-manager was obviously going to benefit.

Spousal dividend planning requires careful implementation so if you are thinking of transferring shares to your spouse and don’t want to be scrutinised by HMRC then it is worth talking to a tax advisor to ensure the transfer is done properly.

“Would you like to know more?”

If you’d like to find out more about Helen Beaumont and Essendon Tax, personal or business tax planning then do give me a call on 01280 700405 or click here to ping me an email and let’s see how I can help you.

Until next time …

KATH BONNER-DUNHAM