Transferring shares to your spouse or partner can be an effective way to reduce your tax burden, particularly if you are a higher-rate taxpayer and your other half is in a lower bracket. However, the tax implications of such arrangements depend on your specific marital status and total household earnings, so careful consideration and planning are paramount. Let’s take a look.
Reduce your household tax bill
The most common reason why a shareholder would choose to transfer shares to their husband, wife, or partner is tax efficiency.
This strategy is most effective if you are in a higher Income Tax bracket, or you would be if you were to take all of the available dividends from your shareholdings. For example, you’re a higher-rate or additional-rate taxpayer, whilst your spouse or partner has no taxable income or is a basic-rate taxpayer.
Should you find yourself in this situation, you could significantly reduce your household tax burden by transferring some of your shares to your other half, thus utilising their unused Personal Allowance and/or lower tax band entitlement.
Like all UK shareholders, your spouse or partner would also be entitled to a tax-free dividend allowance of up to a certain amount each year (currently £1,000 for 2023/24).
Capital Gains Tax on share transfers
The largest tax concern when giving shares to family members is Capital Gains Tax (CGT). However, you do not have to pay CGT on any shares that you transfer (i.e. sell or gift) to a spouse or civil partner unless you are separated and did not live together at any point during the tax year in which the transfer took place.
If your husband, wife, or civil partner later disposes of (sells) the shares, they may have to pay tax on any gain (profit) they make from the sale. The capital gain is the difference between the market value of the shares when you gifted them and when your spouse or partner sold them.
Share transfers between unmarried couples
Unfortunately, the rules are different for share transfers between unmarried couples, even those who have lived together for many years as if they were legally married.
If you were to transfer shares to your domestic partner, the transfer would be treated for tax purposes as if the shares were sold to them at market value. In this situation, you would have to pay Capital Gains Tax on any gains (real or perceived) above the annual CGT allowance of £6,000.
However, you may be able to claim Gift Hold-Over Relief if your domestic partner is a UK resident for tax purposes and the shares you transfer are in a company that is either:
- not listed on any recognised stock exchange (i.e. it is a private company), or
- your personal company (i.e. you hold at least 5% of the voting rights)
Additionally, your company’s main business activities must be in trading (e.g. selling goods or services) rather than non-trading activities like property letting or investment.
Gift Hold-Over Relief does not provide exemption from the chargeable gain – it simply postpones the tax liability, which allows you to gift shares without being subject to any tax charge.
Dividend tax liability of your spouse or partner
Whilst transferring shares to your spouse or civil partner is unlikely to trigger a Capital Gains Tax liability, your other half may have to pay dividend tax on the dividend income they receive from the company.
If the dividend payments are within their annual dividend allowance (£1,000 for 2023/24) and tax-free Personal Allowance (£12,570 for 2023/24), no tax will be due. Above this sum, they will be liable to pay dividend tax in accordance with their Income Tax band.
Your spouse or partner will be required to register for Self Assessment to report their dividend income and pay any tax due to HMRC.
Beware of restrictions on share transfers
Before transferring shares to your spouse or partner, you should review the company’s articles of association and shareholders’ agreement for any restrictions on the sale or gifting of shares.
This should not pose a problem if you are the sole shareholder and director. In such instances, you make all the rules and are free to alter or remove provisions that you may have previously put in place.
You are more likely to encounter restrictions if the company is owned by multiple shareholders. Such restrictions may include pre-emption rights, a prohibition on transferring shares to family members, or the need for the unanimous consent of members or approval from a specified majority.
Put a shareholders’ agreement in place
No matter how strong your relationship is with your spouse or partner, it is advisable to have a shareholders’ agreement in which all eventualities are covered. You never know what may happen in the future, so this is the best way to protect your interests and those of the business.
When transferring shares to a husband, wife, or partner, the types of bespoke provisions you may wish to cover in a shareholders’ agreement include share buyback clauses (e.g. in the event of divorce or separation), conditions prohibiting your spouse from transferring their shares to a third party, and that their shares automatically transfer to you if they pass away.
No one likes to think about or plan for the worst, but it is necessary. Ensuring that your articles and shareholders’ agreement are properly drafted with appropriate provisions will give you peace of mind and make life easier if things don’t go according to plan.
Talk to an accountant or tax advisor
Selling or gifting shares to anyone requires careful consideration and meticulous planning. If you are thinking about transferring shares to your spouse or partner, we strongly recommend consulting an accountant or tax advisor for professional advice.
They will be able to discuss the most beneficial way to arrange share transfers, distribute dividend income, avoid unexpected tax burdens, and ensure that your articles and shareholders’ agreement are completed to a high standard.
1st Formations’ Transfer of Shares Service
The share transfer process can be complex and time-consuming. To ease your administrative burden, 1st Formations provides a Transfer of Shares Service for £69.99.
With this service, our specialist team of company formation experts will prepare all of the required documentation to successfully transfer shares to your spouse or partner, including the J30 stock transfer form, board resolution, and share certificates.
For an additional cost of £24.99 plus VAT, we can also prepare and file a confirmation statement, to ensure that your shareholder information is updated on the Companies House register.
If you would like to speak to us about this service, or have any questions about transferring shares in a limited company, please contact us.