Income Splitting for Couples

Key facts

Transfers between spouses and civil partners are generally tax-free.
The Marriage Allowance lets you transfer £1,260 of personal allowance to your spouse (saving up to £252).
Dividend income from jointly held shares can be split based on actual shareholding.
Each spouse has their own personal allowance (£12,570), savings allowance, dividend allowance, and CGT exemption.
Income splitting only works for married couples and civil partners — not unmarried partners.

Why Income Splitting Works

UK Income Tax is charged on individuals, not households. Each person has their own personal allowance (£12,570), tax bands, dividend allowance (£500), savings allowance, and CGT annual exemption (£3,000). If one spouse is a higher-rate taxpayer and the other has unused allowances, shifting income can reduce the household’s total tax bill significantly.^[1]

Important: Income splitting strategies only apply to married couples and civil partners. Unmarried cohabiting partners cannot transfer allowances or benefit from no-gain/no-loss CGT transfers.

The Marriage Allowance

The simplest form of income splitting. If one spouse earns less than the personal allowance (£12,570), they can transfer £1,260 to the other, provided the recipient is a basic-rate taxpayer.^[1]

Item	Amount
Transferable allowance	£1,260 (10% of £12,570)
Tax saving for recipient (20%)	£252 per year
Transferor’s remaining allowance	£11,310
Can backdate	Up to 4 years

Dividend Income Splitting

For company directors, dividends are taxed on the shareholder who owns the shares. If both spouses hold shares in the family company, each can receive dividends taxed at their own marginal rate.^[2]

Worked Example

A director holds 100% of shares and takes £50,000 in dividends (no other income):

Scenario	Director Only	50/50 Split with Spouse
Dividends received	£50,000	£25,000 each
Personal allowance used	£12,570	£12,570 each
Dividend allowance	£500	£500 each
Taxable dividends	£36,930	£11,930 each
Tax rate	10.75% (basic rate)	10.75% each
Dividend tax payable	£3,970	£1,282 each (£2,564 total)
Tax saving	—	£1,406

The saving is even larger if the solo director would fall into the higher rate band (35.75%).

Tip: Your spouse does not need to work in the business to own shares, but the shareholding must be genuine. Consider issuing different share classes (e.g., alphabet shares) so you can control dividend timing and amounts flexibly.

Splitting Property Income

Rental income from jointly owned property is normally split 50/50 between spouses for tax purposes, regardless of the actual ownership split. However, you can file Form 17 with HMRC to be taxed according to your actual beneficial ownership (e.g., 90/10).^[3]

The default 50/50 split applies unless Form 17 is submitted
Form 17 requires the property to be genuinely held in unequal shares
Form 17 does not apply to partnership property income

Savings Interest

Each person has a personal savings allowance:

Basic-rate taxpayers: £1,000 of interest tax-free
Higher-rate taxpayers: £500 of interest tax-free
Additional-rate taxpayers: £0

By holding savings accounts in the name of the lower-earning spouse, you can maximise the use of their savings allowance.

CGT Planning for Couples

Each spouse has a £3,000 CGT annual exemption. Transfers between spouses are on a no gain/no loss basis. By transferring assets before sale, you can:^[4]

Use both annual exemptions (£6,000 combined)
Use the lower-earning spouse’s basic rate band (18% instead of 24%)
Offset the gain against the receiving spouse’s capital losses

What to Avoid

Sham arrangements: HMRC can challenge arrangements that lack genuine substance
Settlements legislation: Broadly, if you retain control over gifted income-producing assets (other than to a spouse), the income may still be taxed on you
Uncommercial salaries: If you employ your spouse, their salary must be reasonable for the work they do

Frequently Asked Questions

Is income splitting legal?

Yes. Using legitimate structures to allocate income between spouses is perfectly legal. HMRC expects dividends to be taxed on the person who owns the shares, so the share ownership must genuinely reflect the income split. The key is that the arrangement must be genuine and not a sham.

What is the Marriage Allowance?

The Marriage Allowance (also called the transferable tax allowance) lets one spouse transfer 10% of their personal allowance (£1,260 for 2026/27) to the other. The transferor must be a non-taxpayer, and the recipient must be a basic-rate taxpayer. It saves up to £252 per year.

Can I split self-employment income with my spouse?

You cannot simply “allocate” self-employment profits to a spouse. However, if your spouse genuinely works in the business, you can pay them a salary (which must be commercially reasonable). Alternatively, a partnership structure lets you share profits according to the partnership agreement.

What about the Arctic Systems case?

The Jones v Garnett (Arctic Systems) case confirmed that the “settlements legislation” does not prevent a spouse from receiving dividends on shares they genuinely own in a family company, provided the shares carry normal rights. The spouse exemption in the settlements rules protects outright gifts between spouses.

Sources

Marriage Allowance — GOV.UK
Tax on dividends — GOV.UK
Income Tax: the settlements legislation (ITTOIA 2005) — HMRC
Capital Gains Manual: CG22200 – Married couples — HMRC