Can Transferring Shares to a Spouse Increase Entreprenuer Relief?

Can Transferring Shares to a Spouse Increase Entreprenuer Relief? Chris Chapple, Tax Advisor at BDO, explains how transferring shares to a spouse can increase entrepreneurs relief.

Can Transferring Shares to a Spouse Increase Entreprenuer Relief?

Neil Ackroyd

Neil Ackroyd is the Founder and principle interviewer at Corporate Finance TV.

Chris Chapple

Neil Ackroyd

Right okay and just so I understand that fully can a spouse benefit from that and what are the rules around that and the shareholding and the transfer of shareholdings to possibly make that £10 million £20 million?

Chris Chappel

So whilst the limits have increased in an attractive way a lot of the complicated conditions still exist so if you’re selling shares in a business there are a number of 5% tests that have to be met, in particular you need 5% of ordinary share capital and you need 5% of the voting power. You also need to have been an employee or an office holder of the business and all those conditions need to have been satisfied for a 12 month period of time before the date of disposal so there’s a certain amount of forward planning that needs to be done. In relation to spouses yes you can transfer shares from an individual to his or her spouse and potentially increase that relief but the spouse will also need to satisfy all those tests in their own so potentially being an employee or a director of that business as well. So there is a certain amount of planning and complexities to that.

Neil Ackroyd

And I guess that brings up quite interesting areas doesn’t it because you want to advise a client to be safe in most scenarios and one of the things that I think people are quite often advised is just in case something out of the blue happens and just completely torpedoes the business and then kicks into director’s liability as well it’s probably a good idea to only have one of the spouses as a director so that some of your assets are away from the business and if you start having both spouses as a director, both spouses, you know in the business, then whilst you might be going to get £20 million of entrepreneur’s relief then all your assets are kind of potentially at risk.

Chris Chappel

Yes being a director of a company in the UK carries certain fiduciary responsibilities and you’re absolutely right there is a certain degree of risk to that so you have to balance your commercial risk with your potential tax outside that.

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