Dividend sharing with spouse - any more news from current government?

[Kaoticturtle]

Hi there

I'm about to set up my own limited company as I've just accepted a contract job and am moving out of permanent work. Its a steep learning curve and I've been researching a lot so that I can have a reasonably intelligent conversation with my accountant once I appoint one.

As we are moving so that I can take up the contract, my husband is going to be giving up work to finish his degree. This means that we are looking into the possibility of splitting the shares between us and therefore the dividends to reduce our tax payments.

From reading through past posts, this is termed "income splitting" and something that the last government was looking to stop but they never quite managed to get the relevant law in place following the Artic systems case. The last thread that I can find on this was from just after the present government came into power and the general consensus was that they wouldn't be looking to close the loophole down as a priority.

Does anyone know if this is still the case? We're a few months down the line and the government has been getting more into the swing of things so I'm not sure if any more information has come out.

Thanks
KT

[malvolio]

They would have to frame an unambiguous law that goes totally against a clear, unanimous ruling by the highest court inthe UK. The net return from sch a measure, if it could be made to work, would be paltry. Given the Coalition doesn't seem to share NL's hatred of marriage and civilised behaviour, i can't see them trying. Another case was thrown out a week or so back, Patmore vs HMRC, where HMRC tried to stitch up the Patmores on a technicality and the judge tole them where to go.

So don't worry about it. It's legal, and you'll have at least two years warning if that's likely to change.

[Wanderer]

we are looking into the possibility of splitting the shares between us and therefore the dividends to reduce our tax payments.

Hi and welcome!

Yes, there was a lot of noise about it and then it went really quiet. The short answer is that you can still income split, though some accountants will advise you not to. The government was going to close this "loophole" but it remains a valid way to arrange your tax affairs and lots of couples do it. There are a couple of things to watch. I suggest you consider the following when you speak to your accountant:

You can form a LTD company with yourself and your spouse as share holders. Typically you might have 100 shares at £1 each and you would each buy 1 share. Dividends are allocated based on how many shares you own so in this case a profit which was taken as dividend would be split 50/50 between you both.

Note that it's important that the shares are "ordinary shares" as they give the shareholder rights (to vote in company meetings etc), they aren't merely a right to income - this was one of the points that swayed the Artic systems case. If they were "preference shares" which only carried a right to income and nothing else, then it may be considered a settlement.

You can also pay your spouse a salary but they have to do some work for the company to earn this. As there is a certain amount of administration, book keeping and research involved in running a LTD, couples often employ their spouses to do this work.

There is an article here which may be of interest.

[malvolio]

Hi and welcome!

Yes, there was a lot of noise about it and then it went really quiet.

A seven year £1m court case, a two year campaign involving the main accountancy bodies and the PCG and two hastily revised budgets is rather more than a "bit of noise"...

Note that it's important that the shares are "ordinary shares" as they give the shareholder rights (to vote in company meetings etc), they aren't merely a right to income - this was one of the points that swayed the Artic systems case. If they were "preference shares" which only carried a right to income and nothing else, then it may be considered a settlement.

Totally wrong. The recent Patmore case put that one to bed rather comprehensively. Spouses can share the income from a business owned both without let or hindrance regardless of share structures.

[Fred Bloggs]

We have recently altered our Ltd Co's share holding from 3 and 2 to 3 and 3 shares, ie 50/50. These is now little chance of a challenge being upheld IMO.

[Wanderer]

Totally wrong. The recent Patmore case put that one to bed rather comprehensively. Spouses can share the income from a business owned both without let or hindrance regardless of share structures.

Ahh, I was going on the judgement from Arctic systems which appeared to hinge on the fact that these were ordinary shares.

Patmore was a bit different to most contractors in that there was a substantial investment in the company (paid out of a loan that husband and wife were jointly liable for) so it's a bit more complex. I agree that this judgement appears to have completely destroyed any argument against "income splitting" from HMRC though (even with non ordinary shares).

Thanks for the correction.

[THEPUMA]

A seven year £1m court case, a two year campaign involving the main accountancy bodies and the PCG and two hastily revised budgets is rather more than a "bit of noise"...


Totally wrong. The recent Patmore case put that one to bed rather comprehensively. Spouses can share the income from a business owned both without let or hindrance regardless of share structures.

Not true. I'm not sure where you've got your analysis of the Patmore case from but the upshot of the case is that you can no longer use alphabet shares to enable you to have the flexibility to pay disproportionate dividends.

Patmore doesn't supersede the ruling in Arctic Systems nor in Young vs Pearce which mean that a dividend paid to a spouse owning preference shares may be taxed on the main fee-generating spouse.

Puma

[Fred Bloggs]

Not true. I'm not sure where you've got your analysis of the Patmore case from but the upshot of the case is that you can no longer use alphabet shares to enable you to have the flexibility to pay disproportionate dividends.

Patmore doesn't supersede the ruling in Arctic Systems nor in Young vs Pearce which mean that a dividend paid to a spouse owning preference shares may be taxed on the main fee-generating spouse.

Puma

Thanks, those are useful things to be aware of.

[lje]

Hi there
As we are moving so that I can take up the contract...

Not quite on subject but worth mentioning that if your company requests that you move for the job then it can pay you up to £8,000 (I think that's the right number) for moving expenses without it attracting tax. Might be worth discussing with your accountant.

[mico1411]

Not quite on subject but worth mentioning that if your company requests that you move for the job then it can pay you up to £8,000 (I think that's the right number) for moving expenses without it attracting tax. Might be worth discussing with your accountant.

Remember, this must be £8000 of incurred expense that the company then refunds you. There are guidelines on what qualifies as a valid moving expense on the HMRC web site.

You can't simply pay yourself an £8000 tax-free bonus for moving house!