As a UK small business director shareholder, you may be considering transferring shares to your spouse. This could be for succession planning, tax efficiency or asset protection. So what are the implications in terms of tax on interspouse share transfers and other factors that you need to know?
These are the main areas to consider:
Capital gains tax (CGT).
Inheritance tax (IHT).
Income tax.
Company law considerations.
Control and voting rights.
Capital gains tax (CGT)
There is no immediate CGT bill when you transfer shares to or from your spouse. However, you should be aware that any transfer is a taxable event and any latent gains may be assigned to the spouse handing over the shares. Should the new owner sell the shares in future, they may find themselves facing a CGT bill.
Inheritance tax (IHT)
Transferring shares to a spouse is exempt from inheritance tax. Therefore if the person handing over the shares passes away, the spouse receiving the shares will not have an IHT bill. However, a potential IHT bill could be triggered if your spouse transfers or sells those shares to someone else.
Income tax
Handing over shares to a spouse generally doesn't have immediate tax consequences and they won't be taxed on the value of shares received. However, as a shareholder the spouse receiving the shares is likely to have taxation implications if they receive dividends, which will be taxable on the share owner.
Company law considerations
Before you transfer any shares, we recommend that you review your company Articles of Association (AAs), along with any shareholder's agreements that you have in place. The company AAs may contain rules specific to share transfers that must be complied with. The right paperwork is needed, to evidence any board or other shareholder approvals too.
Control and voting rights: impact of
Tax on interspouse share transfers is not the only consideration. By becoming a shareholder, or changing your spouse's shareholding in anoy other way; you also could influence their control and votoing rights within your business. Consider carefully any potential consequences on decision-making, management structure and overall company governance. Discussing and finding common ground on these matters will be helpful to ensure continued smooth business operation in future.
Other factors to consider, aside from tax on interspouse share transfers
There are other factors to consider when transferring shares to or from your spouse, not just the tax aspects:
Stamp Duty:
There may be a nominal Stamp Duty charge arising from the transfer. This depends on the value of shares being transferred, however the stamp duty liability is generally low or nil for interspouse share transfers.
Professional Advice:
Advice from a tax advisor or solicitor who has both tax and business expertise, is a good idea. It helps to ensure legal compliance in addition to tax efficiency.
Financial Planning:
Considering an interspouse share transfer should be a part of a wider financial planning strategy. You should bear in mind longer-term implications, including retirement planning, family wealth management and potential future business plans and changes.
If you have any questions, come and talk to us!