Dividend allowance
In addition to your tax free personal allowance, you get an annual tax free dividend allowance of £2,000.
By gifting some of your company shares to your spouse, they can also have up to £2,000 of dividends tax free every tax year.
Provided your spouse has no other reason to complete a tax return and the annual dividend payments are less than £2,000, your spouse will not need to file a tax return or notify HMRC.
Tax saving example
Darren is a dentist and has a limited company. He is a higher rate tax payer and pays 32.5% income tax on some of his dividend income. His wife Davina is also a higher rate tax payer. His accountant advises him to gift some of his shares to Davina and pay her an annual £2,000 dividend. Davina has no tax to pay on this dividend. Darren reduces his annual dividends by £2,000 and this saves him income tax of £650 (£2,000@32.5%).
Further points
- If you are in a civil partnership shares can be transfered to your civil partner just the same as a spouse.
- If your spouse pays tax at a lower rate than you, it may be sensible to pay more than a £2,000 dividend.
- It is important that the shares are given as a gift to your spouse. If you issue new shares to them, or they pay you for the shares, the dividends will be taxed on you.
- It’s best practice to have a different share category for your spouse’s shareholding. This allows dividends to be paid at different rates, increasing the potential to save tax.
- Always talk to an accountant before taking any actions. Calculating the effect of transferring shares can be complex due to the interaction of tax rates and allowances, and the high income child benefit charge. The wider implications of making gifts to a spouse must also be considered.
