Your instinct is a good one: this is exactly the kind of arrangement the settlements legislation was written to look at. But on the facts you describe, you have a solid basis for staying on the right side of it. Here is why.
What the legislation does
The settlements legislation (Chapter 5 of Part 5, Income Tax (Trading and Other Income) Act 2007) can treat income as belonging to the person who arranged a "settlement" if they retain an interest in it. It exists to stop people shifting income to someone else's tax bands while keeping the underlying benefit. If HMRC decided your husband's dividends were caught, they would be taxed as your income instead of his, which would wipe out the whole point of the arrangement.
The spouse carve-out
There is an important exception: outright gifts between spouses or civil partners are carved out of the settlements rules (section 626), unless the gift is wholly or substantially a right to income. This was tested at the highest level in Jones v Garnett (the "Arctic Systems" case), where the House of Lords held that dividends on shares a husband had given his wife were not caught, because the shares were an outright gift and not merely a right to income. That decision is still the foundation for dividend planning between spouses.
Where alphabet shares sit in this
Your strongest fact is that each of you would hold your own class of shares. If your husband subscribes for his own class of shares in his own right (rather than you gifting shares to him), there is arguably no settlement at all: nothing was settled on him by you, and nothing was given away. That is a materially better position than transferring shares to a spouse after the fact.
Where HMRC gets interested is in arrangements that look engineered purely for income splitting: shares with no voting rights and no capital rights, essentially a bare stream of dividends, or shares "gifted" with strings attached. HMRC's own guidance in its Trusts, Settlements and Estates Manual (TSEM4205, updated September 2026) sets out exactly this boundary: the exception fails where what was given is wholly or substantially a right to income. So the shares should carry genuine shareholder rights, not just a right to receive dividends.
Practical safeguards
1. Have your articles properly amended so each share class can receive separate dividends, and document the share allotments (file an SH01 at Companies House and issue share certificates).
2. Each dividend must be properly declared and minuted by the board, supported by dividend vouchers, and paid only out of distributable profits. Informal or undocumented payments are the classic trigger for HMRC enquiries.
3. Make sure your husband's shares carry real rights (voting, capital on a winding up) and are genuinely his. He does genuine work in the business, which supports the commercial reality of the arrangement.
4. Keep everything documented: board minutes, dividend paperwork, share registers and evidence of his work in the business.
The tax arithmetic you mentioned is real: he gets the GBP 500 annual dividend allowance, and dividends above that are taxed at his marginal dividend rates (for 2026-27, 10.75% basic rate, 35.75% higher rate, 39.35% additional rate), so using his lower band genuinely saves tax provided the arrangement is legitimate.
One honest caveat: settlements is heavily fact-dependent and HMRC's view of alphabet shares can be aggressive. Given what is at stake, have your accountant review the articles and the share structure before you implement this, rather than after. This is general information on a complex area, not advice on your specific facts.
