Can I pay dividends to my spouse from my family company to save tax?

Yes. If your spouse or civil partner owns ordinary shares that you gave them outright, dividends paid on those shares are taxed as their income, not yours. The rule is the outright gift exemption in section 626 of ITTOIA 2005, which the House of Lords applied in Jones v Garnett [2007] UKHL 35, the Arctic Systems case.

What HMRC accepts

The settlements legislation stops one person diverting income to another to save tax. Between spouses and civil partners there is a specific exception for outright gifts that are not wholly or substantially a right to income.

HMRC's own manual (TSEM4205, Example 6) covers the case that matters to most owner-managed companies. An IT consultant gives his wife all the shares in his personal company. He takes a £40,000 salary and the company pays the remaining £30,000 of profit to his wife as a dividend. HMRC accepts the dividend is hers, because the shares are ordinary shares with capital rights and not just a right to income.

The House of Lords reached the same place in Jones v Garnett, known as Arctic Systems. It held that the arrangement was a settlement, but that the gift of shares between spouses fell within the exemption, so the dividends belonged to the wife.

What makes the gift outright

A gift of shares is not outright if it is subject to conditions, or if the shares or their income can come back to you in any circumstances. It also fails if the shares are essentially a bare right to income.

The manual shows the difference. Shares with no votes and no right to anything on a winding up (Example 5, based on the case of Young v Pearce) stay taxable on the person who gave them. Ordinary shares with votes, dividend rights and a share of the capital pass the test.

What it saves in 2026/27

Dividends above the £500 allowance are taxed at 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% above £125,140. Both the basic and higher rates went up by two percentage points on 6 April 2026, so the gap between them is still 25 points. What has changed is that every pound of dividend now costs two points more, so a badly built arrangement costs more to unpick.

A spouse with no other income can take up to £50,270 of dividends in 2026/27 for £3,999 of tax. That is £12,570 of personal allowance, £500 of dividend allowance and £37,200 at 10.75%.

Child Benefit and the £100,000 trap

Moving dividends to a spouse lowers your own adjusted net income, and three thresholds look at that figure.

• The High Income Child Benefit Charge starts at £60,000 and takes 1% of the Child Benefit for every £200 above it. At £80,000 all of it goes.
• Your personal allowance reduces by £1 for every £2 of income above £100,000.
• The personal allowance is gone altogether at £125,140.

A director at £85,000 or £110,000 can find the split is worth far more than the headline rate difference suggests.

Setting it up properly

1. Check the articles and make sure the shares you are transferring are ordinary shares with full rights.
2. Transfer existing shares by a signed stock transfer form and update the register of members. If your spouse ends up with more than 25% of the shares or votes, the register of people with significant control changes as well, and the next confirmatory statement shows the new shareholder.
3. Check the company has enough retained profits. Dividends can only be paid out of them.
4. Declare dividends in proportion to shareholdings, with a board minute and a dividend voucher for each shareholder.
5. Pay your spouse's dividend into an account in their own name and let them decide how to use it.
6. Keep taking a salary that is realistic for the work you do.
7. Keep the transfer, the minutes and the bank statements together. If HMRC asks, you want them in one place.

Where it goes wrong

• Giving your spouse a share class with no votes or capital rights.
• Paying different dividends to each of you through a waiver or separate classes. See our pages on dividend waivers and alphabet shares.
• Routing your spouse's dividend back to you, or using it to meet your personal debts.
• Adding a clause that forces the shares back to you, for example on divorce. A clause like that is a condition and puts the exemption at risk. See what happens to spouse shares on divorce.
• Giving shares to children under 18. Their dividends over £100 a year are taxed on you. See shares for children.
• Paying dividends when the company has no retained profits to support them.

If you set up a split before April 2026 and have not looked at it since, review it now. The shareholdings, the articles, the dividend paperwork and the bank accounts are the four places an enquiry starts.

Sources: HMRC manual TSEM4205: outright gifts between spouses · ACCA summary of Jones v Garnett · GOV.UK: tax on dividends · GOV.UK: High Income Child Benefit Charge