Handing Over Shares to Your Spouse: The Tax Implications and Crucial Factors to Think About
As a small business proprietor in the UK, you may have contemplated handing over shares to your spouse. This strategy could be for succession planning, tax streamlining, or asset protection. It’s essential to grasp the tax implications and key factors involved in such a transaction. In this blog post, we’ll talk you through the tax considerations and underscore crucial points to keep in mind when handing over shares to your spouse.
Capital Gains Tax (CGT):
There’s no immediate tax bill known as Capital Gains Tax (CGT) when you hand over shares to your spouse. However, it’s worth noting that this transfer is considered a taxable event, and any latent gains may be ascribed to you, the spouse handing over the shares. Should your spouse decide to sell these shares in the future, they may find themselves facing a CGT liability.
Inheritance Tax (IHT):
The handover of shares between spouses is exempt from Inheritance Tax. This means that should you pass away, the shares received by your spouse will not be subject to IHT. However, a potential IHT liability could be triggered if your spouse hands over the shares to someone else.
The handover of shares to your spouse usually doesn’t have immediate income tax implications. They won’t be taxed on the value of the shares received. However, if your spouse becomes a shareholder and starts accruing dividends, their personal income tax stance may be altered.
Company Law Considerations:
Prior to handing over shares, you should review your company’s Articles of Association and any shareholders’ agreements. These documents may contain specific rules related to share transfers that must be adhered to. Complying with your company’s internal procedures and obtaining necessary approvals from the board or other shareholders is also critical.
Impact on Control and Voting Rights:
Handing over shares to your spouse could influence control and voting rights within your business. Be mindful of potential consequences on decision-making processes, management structure, and overall governance. Discuss and find common ground on these matters to ensure smooth business operations.
There are several other factors to consider when handing over shares to your spouse, apart from tax implications:
The transfer of shares might attract Stamp Duty at a nominal rate, depending on the share value being transferred. However, the Stamp Duty liability is generally low or nil for transfers between spouses.
It’s wise to seek counsel from a tax advisor or a solicitor with business and tax expertise to ensure legal compliance and optimise tax efficiency.
The share transfer should be part of a wider financial planning strategy. Keep in mind the long-term implications on retirement planning, family wealth management, and potential future business shifts.
When handing over shares to your spouse in a small UK business, it’s crucial to be aware of the tax implications, such as CGT and IHT.
Understanding the rules, seeking professional advice, and considering wider factors will help facilitate a seamless transfer process and maximise the benefits for both your business and your family. Always consult with a qualified professional to customise the advice to your unique circumstances.