See What's Inside
Get a sneak peek at the actionable strategies and practical modules that have helped 2,500+ UK doctors save thousands every year.
Income Structuring and Optimisation
A taste of the practical, step-by-step guidance you'll find inside the full blueprint.
Module 1: Income Structuring
How to use limited companies, LLPs, and partnerships for maximum tax efficiency.
Income Splitting Strategies for Medical Professionals: Maximising Tax Efficiency
What is income splitting and why is it effective?
Strategy Overview: Income splitting is one of the most powerful tax planning strategies available to high-earning medical professionals. The principle is straightforward: legally diverting portions of your income to family members (typically a spouse or civil partner) who may have lower marginal tax rates or unused allowances, thereby reducing the overall household tax burden.
The effectiveness stems from the UK's progressive tax system:
Key Benefit: For doctors earning in the £125,140+ bracket where personal allowances have been withdrawn, strategic income splitting becomes particularly valuable, as income taxed at 45% in your hands might only attract 20% tax (or sometimes none) when received by a spouse or family member.
What are the primary methods for income splitting?
1. Employing Family Members
Mechanism: Paying a salary to a spouse/family member for genuine work performed for your non-NHS activities or related business activities (e.g., administrative support, bookkeeping, practice management).
Tax Impact: The salary is a tax-deductible expense for your business and taxed as employment income for the recipient. If their total income remains within lower tax bands, significant savings are possible.
Anti-Avoidance Alert: The salary must reflect the commercial value of work performed. HMRC will challenge excessive payments under the "wholly and exclusively" rule for business expenses and potentially the Settlements Legislation.
2. Partnerships (including Limited Liability Partnerships - LLPs)
Mechanism: Operating your non-NHS activities through a partnership structure with your spouse or family member as a partner, including the possibility of "sleeping partners" who contribute capital but don't actively participate in the business.
Tax Impact: Profits are allocated amongst partners according to the partnership agreement after expenses. Each partner is then taxed individually on their share via Self-Assessment.
Key Advantage: Partnerships offer significant flexibility. Profit-sharing ratios can potentially be adjusted annually to optimize tax outcomes based on each partner's total income profile.
Capital Contributions: Importantly, if a partnership is set up with a capital contribution from family members, this counts as a legitimate reason to take a share of profits. The anti-avoidance rules are much more relaxed for partnerships and rarely challenged, as partnerships are seen as tax transparent. This means income splits can be fairly extreme while still remaining legitimate.
Suitability: Often considered the most tax-efficient structure if the goal is to distribute all profits personally each year.
3. Limited Companies
Mechanism: Operating through a private limited company where your spouse/family member holds shares and receives dividends. They might also be employed as a director/employee.
Shareholder Status: It's important to emphasize that simply being a legitimate shareholder is a completely valid basis for receiving dividends, regardless of work performed or other contributions. The legal right to dividends comes from share ownership itself.
ABC Shares: Issuing different classes of shares (commonly referred to as A, B, and C shares) enables flexible dividend distributions. For example:
- Class A shares might be held by the doctor
- Class B by the spouse
- Class C by children or a family trust
This allows targeted dividend payments to each class independently.
Tax Impact: The company pays Corporation Tax on profits. Funds extracted as dividends are taxed on individual shareholders at lower rates than income tax.
Formation Strategy: Setting up shareholdings as a split when initially forming the company mitigates many issues with trying to allocate shares later. A small capital contribution can be made from both the doctor and spouse or family member - even just £1 each is sufficient to establish legitimate shareholding!
Dividend Strategy: For 2024/25, each family member can receive £500 in dividends tax-free, with subsequent dividends taxed at:
- 8.75% (basic rate)
- 33.75% (higher rate)
- 39.35% (additional rate)
Suitability: Often favored for retaining profits within the company for future investment, as Corporation Tax rates may be lower than higher/additional income tax rates.
How can I navigate anti-avoidance legislation?
Critical Compliance: HMRC has several measures designed to prevent artificial income splitting:
- Settlements Legislation (Section 624 ITTOIA 2005): Prevents "income shifting" where arrangements lack commercial substance. The key test is whether income received by a family member represents a "bounty" from the higher earner rather than a return on their capital or labor.
- Targeted Anti-Avoidance Rule (TAAR): Applies to dividend distributions primarily designed to secure a tax advantage.
- General Anti-Abuse Rule (GAAR): Broad legislation allowing HMRC to challenge arrangements they consider abusive.
Key Considerations:
- Structures must have commercial substance and not be perceived as purely tax-driven arrangements
- Being a legitimate shareholder or partner is itself a valid basis for receiving income (dividends or profit shares)
- The Arctic Systems case established important precedent: where a spouse owns shares in a company, dividends received are legitimately theirs for tax purposes, even when most income derives from the other spouse's work—provided the arrangement has proper legal substance
- Family members must make a genuine contribution proportionate to their income share, but this contribution can come in many forms including capital, labor, or simply the legal status of being a shareholder
Which structure offers optimal income-splitting opportunities for doctors?
Partnership Benefits for Medical Professionals:
- Profits can be allocated between partners in any agreed ratio, especially when backed by capital contributions
- Sleeping partners who contribute capital but don't actively work in the business can still receive a legitimate share of profits
- Allocation ratios can be adjusted annually based on changing circumstances
- Partners can receive varying profit shares based on different types of work or income streams
- Lower compliance costs than corporate structures
- No employer's National Insurance on drawings (saving 13.8% compared to salary payments)
- Flexible timing of profit withdrawals
Recommendation: For many medical professionals with non-NHS income, a partnership often provides the optimal blend of flexibility and tax efficiency for income splitting.
Limited Company Benefits:
- Corporate tax rate of 25% compared to 45% personal rate for additional rate taxpayers
- ABC share structures allow targeted dividend distributions
- Simply being a shareholder provides a legitimate basis for receiving dividends
- Opportunity to combine salary and dividend strategies
- Potential for pension contributions through the company
- Ability to retain profits for investment at lower tax rates
Example: Partnership Income Splitting
Scenario: Dr. Ash earns £150,000 NHS income. Her non-NHS activities generate £100,000 profit. Her spouse, Ben, has no other income.
As a Sole Trader:
- Dr. Ash's £100k profit is added to her £150k salary
- Most of this £100k will be taxed at 45% (Additional Rate) plus Class 4 NICs
- Total tax/NICs on the £100k profit: approximately £47,000
As a Partnership:
- Dr. Ash and Ben form a partnership for the non-NHS activities
- Ben makes a capital contribution and takes on administrative duties
- They allocate £50,270 profit to Ben (utilizing his Personal Allowance and Basic Rate band fully) and the remaining £49,730 to Dr. Ash
- Ben pays approximately £8,500 in tax/NICs on his share
- Dr. Ash pays approximately £23,000 in tax/NICs on her share
- Total tax/NICs on the £100k profit: approximately £31,500
Result: Immediate saving of approximately £15,500 through partnership income splitting.
Conclusion: Income splitting remains one of the most effective tax planning strategies for medical professionals, but implementation must be meticulous. The right structure, properly documented and reflecting genuine economic reality, can deliver significant and sustainable tax savings while supporting family wealth building and growth of your non-NHS income streams.
What UK Doctors Say
"Clear, actionable, and effective—saved over £7,500 immediately. Ideal for a busy consultant like me."