10 July 2026
Family Companies: Tax Issues in Shareholding Structures
Companies are often established quickly, with little thought given to the long-term commercial and tax implications of their shareholding structures. For family-owned businesses in particular, this oversight can lead to missed opportunities for tax efficiency, succession planning challenges, and unintended financial consequences. Careful structuring from the outset and periodic review thereafter is essential.
Control vs Ownership: Striking the Right Balance
Many family company founders instinctively retain 100% of the shares to preserve ‘total control’. However, in practice, such concentration is not always necessary:
- 75% ownership is sufficient to pass special resolutions, amend the company’s constitution, and wind up the company.
- More than 50% ownership ensures effective day-to-day control, including director appointments and dividend decisions.
Tax Efficiency Through Income Splitting
A key advantage of distributing share ownership among family members is the ability to spread dividend income. This has become even more significant following the Autumn Budget 2025, which announced increases in dividend tax rates from April 2026.
Involving the Next Generation
Where adult children or relatives actively contribute to the business, granting them shares can be beneficial for both commercial and tax purposes, including motivation, succession planning, and family cohesion.
Changing Landscape: Business Property Relief (BPR)
From April 2026, 100% BPR is capped at £2.5 million per shareholder, with excess qualifying for only 50% relief. This increases the importance of early succession planning.
Spouse Transfers: A Safe Harbour
Transfers between spouses or civil partners are free of IHT and CGT, making them a key planning opportunity.
Employment Income and Anti-Avoidance Rules
Gifting shares within a family usually avoids employment income tax charges, but HMRC scrutiny is increasing. Gifting existing shares is generally recommended.
The Settlements Legislation
Careful consideration is needed when allocating shares to spouses, minor children, and adult children, due to differing tax treatments under settlement rules.
Share Classes and Flexibility
Different classes of shares can provide flexibility in dividend distribution and control, but may affect eligibility for Business Asset Disposal Relief (BADR).
Remuneration vs Dividends
Rising tax rates mean businesses should reassess whether dividends or bonuses provide better post-tax outcomes.
Risks of Over-Fragmentation
Spreading shares too widely can lead to disputes and loss of control, so ownership should remain within a trusted group.
Financial Security and Exit Planning
Owners should retain sufficient shares for retirement while ensuring eligibility for reliefs such as BADR on sale.
Practical Tip: Use a Shareholders’ Agreement
A shareholders’ agreement ensures clarity on rights, obligations, dividend policy, and exit arrangements.
Conclusion
The shareholding structure of a family company is a powerful tool for tax efficiency, succession planning, and wealth preservation. Regular review is essential to adapt to changing tax rules and family circumstances.
At Morrissey Chartered Accountants, we understand how important it is to get your shareholding structure right. Whether you are planning for the future, bringing family members into ownership, or reviewing your current arrangements, our team can provide clear and practical guidance tailored to your needs. Contact us today on 028 4461 7130 to discuss how we can help you put the right structure in place for the future.