Sharing Your Business With Your Other-Half
Newsletter issue - September 07.
By "other-half" we mean your live-in partner, who you are not married to, or joined to in a registered civil partnership. Such relationships are often long term and as stable as many marriages, but they can't normally take advantage of tax breaks available to married couples. That is until we got the result of the Arctic Systems case (see August newsletter), which confirmed that tax rules which apply to husband and wife companies do not apply where the company owners are not married.
Say you own all the shares in your company. You could give away some of those shares to your other-half, or they could buy shares from you, to allow them to receive the dividends paid on those shares. If you cannot benefit from the dividends that are paid on the shares you gave away (or sold), you cannot be taxed on those dividends. So the Taxman can't challenge the split of the business income between you. This can result in less tax being paid in total between you if income is shifted from the person paying higher rate tax to one paying lower rate tax.
There is a small chance that where your other-half uses the dividend income to pay for general household expenses, the Taxman could argue that you are benefiting from that income. But if you both contribute equally to the household costs, from your own bank accounts, one person cannot be said to be supporting the other.
There can be other tax considerations of transferring the shares in relation to both Capital Gains Tax and Inheritance Tax, so please contact us for advice before doing so.
There is certainly more scope now for tax planning with unmarried couples, but the Government is planning to change the law, which may hit married and unmarried couples equally. We will keep you updated of any changes that occur.