Thinking About Adding Family or a Partner to Your Business? Here’s Why Alphabet Shares Might Be the Smart Move (Even in 2025)

If you’ve recently set up your company — or you’re just starting to plan — you might be wondering how best to involve your spouse, children, or a business partner in a tax-efficient way.

One popular method used by many small and family-run companies is what's known as an alphabet share structure. But what is it, and is it still worthwhile given the recent changes in tax law?

What Is an Alphabet Share Structure?

In an alphabet share structure, each shareholder is issued a different class of ordinary share, for example, A ordinary shares, B ordinary shares, C ordinary shares, and so on.

Why does this matter?

Because under standard company law, dividends must normally be paid in proportion to the number of shares held. That can be restrictive if different shareholders have different personal income levels or tax positions.

With an alphabet share structure, the company can declare different dividend amounts for each class of shares. That means you can tailor how profits are paid out, which can significantly reduce the total tax bill for the group, especially if shareholders have unused tax allowances or fall into different tax brackets.

Making the Most of the Dividend Allowance. Even as It Shrinks

One key benefit of alphabet shares is the ability to utilise each shareholder’s dividend allowance, the amount of dividend income a person can receive tax-free each year.

However, that allowance has been falling:

• In 2022/23, it was £2,000

• In 2023/24, it dropped to £1,000

• And by 2024/25, it’s just £500 per person

That may not sound like much, but when multiplied across a few family members or partners, it still adds up. For example, in 2022/23, four shareholders could extract £8,000 tax-free. In 2025, it’s down to £2,000 — but still better than nothing.

Why It’s Still Worth It in 2025: Lower Tax Bands

Even with a reduced allowance, alphabet shares are still helpful for tax planning. That’s because people pay different tax rates depending on their income.

For 2025, dividends are taxed at:

• 8.75% for basic rate taxpayers

• 33.75% for higher rate taxpayers

• 39.35% for additional rate taxpayers

If your partner or child has a lower income than you, they may pay much less tax on the same dividend amount, or even none at all if it falls within their personal allowance.

An alphabet share structure gives you the flexibility to direct profits to the people in the lowest tax position, making your business more efficient.

Real-World Example

Let’s say Albert, Betty, and Charlotte each own shares in a company, ABC Ltd.

• Albert has a full-time job and is already in the highest tax bracket

• Betty has modest rental income and is in the basic rate band

• Charlotte works part-time and has low overall income

Each of them holds a different class of share: A, B, and C ordinary shares, respectively.

The company wants to distribute £45,000 in profit.

Using the alphabet structure, they issue:

• £10 per A share

• £150 per B share

• £290 per C share

This results in:

• Albert receives £1,000 — all covered by his £500 dividend allowance and personal allowance.

• Betty receives £15,000 — pays basic rate dividend tax on £14,500.

• Charlotte receives £29,000 — most of which is taxed at the basic 8.75% rate.

Total tax paid? £3,675.

If they had each received a flat £15,000 dividend instead, the tax bill would have jumped to £7,959 — more than double.

The Bottom Line

An alphabet share structure is a smart and flexible way to:

• Bring family or partners into your business

• Use individual tax allowances wisely

• Extract profits in a more tax-efficient way

Even with reduced dividend allowances, the ability to customise payouts means this structure remains a valuable tool for small and growing businesses in 2025 and beyond.

Would you like help setting up an alphabet share structure for your company, or reviewing if your current setup is working efficiently? We can guide you through the process and ensure everything is done properly from the start.