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Whilst a transfer of assets between husband and wife (or civil partners) is always exempt for Capital Gains tax or Inheritance Tax, the position for Income Tax is more problematic. Since the independent taxation of husbands and wives became compulsory in 1990, it is not possible for one individual to be taxed on the earnings of another even if that is what they both desire. Such an outcome could be tax advantageous for a couple if one partner is a higher rate tax payer whilst the other only pays at the basic rate or maybe doesn't pay tax at all. However, it is possible to divert investment income by transferring assets between spouses (or civil partners) or by putting them in joint names. This is most commonly done with bank accounts but is also possible with investments such as shares and property. All it takes is a letter of instruction to the bank or a Stock Transfer form for shares or other securities. Transfers of land and property would probably require the services of a solicitor but should not create any tax liabilities, apart from Stamp Duty Land Tax (SDLT) if the transfer was not a gift (ie if there was some consideration) or if a mortgage was put in joint names.

HM Revenue & Customs will automatically treat any assets in joint names as being owned in equal shares unless you elect otherwise. You must send Form 17 to the Revenue within 60 days if you wish to split income from shares or property in a different ratio and the election must be signed by both partners. However, it cannot be applied retrospectively so you cannot backdate it to earlier tax years. Also, you cannot do this for bank or building society accounts as legally you are both joint beneficial owners. This means that you are both equally entitled to the whole account. Therefore, income from joint accounts is always split 50/50.

If you elect to split income from shares, property or other assets not held as joint beneficial owners, you must do so in the same proportion that you actually own the assets. You are not allowed to split the income simply according to whatever the most favourable tax treatment would be. Of course, there is nothing to stop you actually altering the ratios in which an asset is owned to fit in with your tax strategy, but if you did this too often the Revenue may treat it as an arrangement for which the main purpose was to avoid tax and ignore it. Rather than mess about with ownership ratios, it would be best to simply transfer individual assets between spouses or put them in joint names. You can do this as often as you like.

It should be noted that the 50/50 rule does not apply to shares held in close companies (broadly those owned by their directors or up to 5 shareholders). Dividends from jointly owned shares must be split according to the actual ratios in which the shares are held. However, there is nothing to stop you allocating shares in such companies in the proportions you desire to save tax, so that individual shares are owned by just one person but the number of shares is split between you as agreed. This is a common tax-mitigation strategy for family companies and does not have to reflect the actual work done by each partner, although the present Government would dearly like it to be! Income splitting between shareholders in family companies was high on the Government's agenda for reform a few years ago, but Treasury proposals for anti-avoidance measures released in 2007 were roundly condemned as completely unworkable and the issue was kicked into the long grass, where hopefully it will remain. See our information sheet on Spouse Shares for further details.

Acumen Tax Solutions
2 Purley Bury Avenue, Purley Oaks, Surrey CR8 1JB
Tel: 020 3669 5270 Mobile: 07813 582890 E-mail:

For information of users: Although every care has been taken in compiling this material, it only provides an overview and does not take the place of an individual consultation. We strongly advise all users to consult the detailed legislation or seek professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or this firm.

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