Letting your spouse have shares in your Ltd company is a well tried method of reducing tax. By owning shares, your spouse will become entitled to the tax-free dividend allowance (currently £2,000 pa) and can take dividends taxed at 7.5% where you might be paying a higher rate of tax. There may also be some unused personal allowance to reduce the tax even further.
The greatest advantage is where your spouse is not employed elsewhere or is a low earner and isn’t a shareholder in another company. Ask us about the best way of setting this up.
Gifts, including the transfer of shares, between spouses are tax free so this is a simple method of transferring income and reducing tax.
In some circumstances it may be beneficial to sell shares to your spouse, rather than just give them away, particularly if you have a mortgage. It does rely on persuading a mortgage lender to give you a temporary further advance.
The principle is that you sell some of your shares to your spouse at a discounted price. Let’s say that you decide to sell 40% of your company for £50,000. Of course, the shares have to be valued at more than this at the time of the sale. Your mortgage also must be more than £50,000 at the time of the sale.
Your spouse needs to pay you £50,000 and, in order to achieve this, an additional £50,000 is advanced by the mortgage lender. For the sake of the calculation, let us say the mortgage rate is 5%, so interest of £2,500 per year is claimable as a tax deductible expense by your spouse.
Your spouse gives you the £50,000 and you immediately use it to reduce the original mortgage, leaving the additional advance intact.
You owe exactly the same on your mortgage as you did before but now your spouse can obtain tax relief on £50,000 of it.
The benefits mentioned above – tax free dividends, reduced rate tax on dividends – will still apply.
Being realistic about this, there will be costs, time and effort involved in putting everything in place. It probably doesn’t make a great deal of sense to consider where the amount involved is much less than £50,000.
This is just a summary, so doesn’t constitute advice. It makes sense to regularly review your tax and business affairs to ensure you are getting the best result and effective planning for the future. We are happy to help. Call us – 01509 816150 – or complete the form below.
You will find all sorts of information in our regular newsletter. Why not sign up today?