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Can my partner be a shareholder in my freelance company?

A common question asked when setting up a freelance contracting company is how can I legitimately save tax?

This all depends on your personal circumstances but if your spouse is not a higher rate tax payer, they may have unused allowances available each tax year.

One tax planning suggestion is to pass shares in your company to your spouse. As a shareholder, they will be entitled to a share in all of the dividends that are paid from profits of your company. As a basic rate tax payer, a receipt of a dividend will be effectively tax free.

Care would need to be taken on considering the correct ratio of shareholding between husband and wife to not push your partner into the higher rate tax band. As a higher rate tax payer, personal tax is payable on dividends at the effective rate of 25% of the net dividend.

For 2012/13 the higher rate threshold is £42,475. Don’t forget, dividends are grossed up with a 10% tax credit when establishing the gross income.

The receipt of investment income over £10,000 such as dividends should be declared to HM Revenue & Customs and therefore if this is the case, your spouse should also complete a self assessment tax return.

The passing of shares in your company to your spouse may be described as income shifting for tax purposes however HMRC announced in 2008 that they are delaying any plans of introducing legislation designed to prevent income shifting between partners and spouses.

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