Shares or Loans? Why lending capitals can be more tax efficient than buying shares?

May 14, 2024

Written by

Blog Img

Are you looking to optimize your tax efficiency and harness tax-efficient savings this year? One strategy that small business accountants and tax advisors often recommend is drawing up a shareholder agreement to ensure clarity in your business dealings. Additionally, by gifting shares of your business to your spouse, you can take advantage of both your and your partner’s tax-free allowances, leading to substantial tax-efficient savings. This method effectively minimizes the tax on dividends paid by the company. But did you know about the substantial shareholding exemption? If you’re seeking even greater tax savings and happen to have a mortgage, this exemption, along with another option—selling shares to your partner—might be the perfect solution for you.

Joint Ownership: A Win-Win Strategy

Wondering why joint ownership is the best approach? Instead of being the sole owner of your business, setting up a shareholder agreement to have joint ownership with your spouse is generally considered beneficial, especially when one of you falls into a higher tax bracket. When both of you own shares in the company, the substantial shareholding exemption can be tapped into, and you both can make use of your respective tax-free allowances, dividend nil rate band, and other rate bands to reduce the tax paid on your company dividends.

It’s Never Too Late for a Shareholder Agreement

Have you had doubts about making your spouse a shareholder when you formed the company? If you’re questioning the possibility of a shareholder agreement now, fret not! It’s never too late. Even if your spouse wasn’t initially made a shareholder, HMRC, keeping in view the substantial shareholding exemption, allows you to transfer ordinary shares to them as a gift, furthering your journey towards tax-efficient savings. No matter when you establish your business, it’s always the right time to initiate the process of making your spouse a shareholder.

Real-life Benefits: David’s Success Story

Curious about the tangible benefits of this strategy? Let’s use David as an example. He founded his company (Caravan UK Ltd.) over a decade ago. The business has witnessed significant growth and is now valued at a whopping £600,000. David receives £100,000 annually in dividends from Caravan UK Ltd., with nearly £50,000 taxed at the higher rate. With a desire to minimize his tax liabilities, David’s accountant, knowledgeable about the substantial shareholding exemption, suggests gifting half of the shares of Caravan UK Ltd. to his wife, Jane. This move is designed to maximize the use of her tax-free allowances and basic rate band.

Reach out and reduce your tax bill

If you’re intrigued by these tax-efficient savings and believe you might qualify for tax relief by implementing such plans, don’t hesitate to reach out! Email us at, or give us a call at 020 3735 5119. At Price & Accountants, we are all ears to discuss how we can help you save on your taxes this year.

Our Commitment to Your Business

Committed to propelling small businesses in London and the UK, our firm stands by you for all your accounting needs. Harnessing tools like Xero online accounting software and backed by our team of expert advisors, we aim to see your business flourish.

Discover More with Price & Accountants

Drop by our website to unravel more about our services and discover how we can guide you in tax planning, reaping tax savings, and more. Count on Price & Accountants, your steadfast accountants in Holborn, London, to steer you towards a financially sound future.