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His and Hers
Over the last year, the Revenue have been giving some publicity to their view that splitting a business between husband and wife is 'unacceptable tax avoidance' in many cases, because it uses the personal allowances and lower tax rates of a non-working spouse. They believe that they can reallocate income from one spouse to the other, if they can show that the arrangement is 'generous'. They think that splitting the ownership of a business is generous if one of the couple does all the work and doesn't get paid a market salary.
This is controversial, and a tax case will go to the Appeal Commissioners in June as a first round in the argument about what the law means. In the meantime, any married couple who have split a business between them - company or partnership -should be aware of the possibility of a Revenue attack.
One way around the Revenue's argument used to be to put the shares in a company in the joint names of husband and wife. The law then said that the income had to be split 50:50, unless you told the Revenue that it was otherwise. So you could keep the actual ownership 100:0 - no generosity there - but split it 50:50 just for tax.
This has been closed down from 6 April 2004. The rule has changed very specifically for jointly-owned shares in close companies. Husband and wife will be required to declare the actual beneficial ownership, so the automatic 50:50 split won't apply. If you admit it's 100:0, you don't save any tax; if you say it's 50:50, they will apply the rules on generous arrangements.
The 50:50 split still applies to other jointly-owned assets such as quoted shares and rental properties, where you have the choice of telling the Revenue the actual split or keeping it to yourselves.
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