How to significantly reduce your tax bill by selling shares to your partner

Looking to become more tax efficient this year? Gifting shares of your business to your spouse is often recommended by small business accountants and tax advisors, in order to make use of both you and your partner’s tax-free allowances, and ultimately minimise the tax on dividends the company pays. This is a great move to make, however if you’re looking for ways to save even more and you also happen to have a mortgage, your accounting firm may not have told you to consider selling shares instead of gifting them. Here’s what you need to know:

Firstly, why is joint ownership best?

Instead of owning your business alone, it is widely considered good practice to own it jointly with your spouse whenever one of you is paying a higher rate of tax than the other. When you both own shares in the company, you are both entitled to use your tax-free allowances, dividend nil rate band, and other rate bands, in order to reduce the tax paid on your company dividends. Owning with your partner is a great way to become more tax efficient.

Should I have made my spouse a shareholder when I formed the company?

If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No matter how long ago you formed your business, you can start the process of making your spouse a shareholder at any time.

How does this help reduce my tax bill?

Here’s an example of this tax-saving plan in action:

Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000 per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe would like to save on tax wherever possible.

Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of the shares of Joe Bloggs Ltd. to Jane, in order to make the most of her tax-free allowances and basic rate band.

Tax savings comparison

If you believe you could qualify for tax relief by implementing the plan above, you can discover the savings you could make in your business by filling in your details on our quick form at the link below, and we’ll send you a free, simple table to help calculate.

You can also get in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.

 

EIS & SEIS Registration

Autumn Budget 2017


What is the big picture?

  • Economic Forecast
  • Brexit
  • Technology
  • Productivity

Brexit, most challenging time for small businesses in UK right now, uncertainty is not good for our economy which can also affect small businesses in short and long term. However it will also bring opportunities for smaller businesses therefore get ready.

Government is ready to invest into the Technology, there is £2.5 billion Investment Fund for innovative SMEs. There is also an Investment incentive available for artificial intelligence.

The big headline: Stamp Duty Limits

Up to £125,000: Current Standard rate 0% Rate for first-time buyers 0%
Over £125,000 and up to £250,000 Current Standard rate 2% Rate for first-time buyers 0%
Over £250,000 and up to £300,000 Current Standard rate 5% Rate for first-time buyers 0%
Over £300,000 and up to £500,000 Current Standard rate 5% Rate for first-time buyers 5%

  • You will not pay Stamp duty on the first £300,000 on property purchase (first time buyer)
  • Between £300,001 and £500,000 the standard 5% will apply
  • If your property is over £500,000 this exemption will not apply and will pay standard rates

Personal Tax and National Insurance overview

Personal allowance £11,500 (Now) £11,850 (Next Year)
Basic rate threshold £33,500 (Now) £34,500 (Next Year)
Tax free dividend £5,000 (Now) £2,000 (Next Year)

Dividend Tax! basic rate will be increased to £34,500 which will be taxed at 7.50% savings of £189 (including savings from personal allowances) in the next financial year compared to current year. There would be an additional tax on reduced tax free dividend which will result to an increase in dividend tax of £225. Overall there are no satisfactory tax saving for small business owners in 2018/2019.

Corporation Tax overview

  • Main rate of corporation tax remains at 19%, falling to 17% from 1 April 2020
  • Freezing of corporate indexation allowance from 1 January 2018
  • R&D tax credit increased from 11% to 12%

UK will be very competitive jurisdiction when corporation tax is reduced to 17% (from 2020). Good news for R&D.

Finance for long-term innovation

New £2.5 billion Investment Fund for innovative scale-up SMEs
Double annual allowance for EIS investments in knowledge-intensive companies
Transport Taxes

  • £220 million new Clean Air Fund for local authorities in England
  • Vehicle Excise Duty (VED) supplement for new diesel cars from 1st April 2018
  • Rise in Company Car Tax diesel supplement from 3% to 4%
  • No benefit-in-kind charge for electric vehicles for employees
  • Freeze on fuel duty