Transferring company shares to your spouse – how to gain the most from it?

When it comes to smart tax management, handling your shares in your company can prove to be crucial. If you have a spouse, you can definitely benefit by providing them with a share, whether they’re involved in your business or not. This can work to improve your tax bill, but the main question is this: should you give this share away to your partner, or sell it?

How it works

If you own a business that your partner isn’t a part of, you are an additional rate taxpayer, which means that your spouse pays a lower tax rate, Because of this, when you transfer some of your income to them, they will pay smaller tax for their share, which will serve to decrease your overall tax amount. Later on, when your company pays dividends, part of them will be taxed on your partner instead of you as well.

Transferring your shares to your partner is a simple process. You have to decide how much of your shares you want to transfer to your spouse and then make sure the shares reach them first-hand. It is important to note, however, that you might benefit much more from selling them your shares if you have mortgage.

Selling your shares

In order to sell your shares to your spouse, your mortgage has to be set for a short term. The money from the loan will be used by your spouse to buy the shares from you, after which you can use the money on your account to pay off some of the mortgage. This can change your home mortgage into a tax-qualifying loan that you can use to buy shares.

There are a number of conditions you must meet for this to work, however, First of all, your company must be a trading company (so it won’t work if you mostly hold investments). At least 5% of your company’s total ordinary shares must be sold, and the selling price shouldn’t exceed their market value. If all of these conditions are met, you can enjoy smaller taxes with very little effort. Transactions between spouses follow a different set of rules than normal, so even if you end up selling your shares for a higher price than what they cost you, you still pay no capital gain tax, resulting in a net positive.